Excel Online Structured Activity: Evaluating risk and return

Stock X has a $10\mathrm{.}0\%$ expected return, a beta coefficient of $0\mathrm{.}9,$ and a $30\%$ standard deviation of expected retums. Stock Y has a $12\mathrm{.}0\%$ expected return, a beta coefficient of $1\mathrm{.}1,$ and a $25\mathrm{.}0\%$ standard deviation. The risk$-$free rate is $6\%,$ and the market risk premium is $5\%.$ The data has

been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

a$.$ Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations.

$C{V}_x$:

$C{V}_y=$

b$.$ Which stock is riskier for a diversified investor?

I. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock $x$ has the lower beta so it is more risky than Stock $Y.$

II$.$ For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is more risky. Stock $Y$ has the lower standard deviation so it is more risky than Stock $x.$

III. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock $Y$ has the higher beta so it is less risky than Stock $x.$

IV$.$ For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is more risky. Stock $Y$ has the higher beta so it is more risky than Stock $x.$

V$.$ For diversified investors the relevant risk is measured by standard deviation of expected retums. Therefore, the stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y$.$

c$.$ Calculate each stock's required rate of retum. Round your answers to two decimal places.

$r_x=,y_0$

$r_y=,b$

d$.$ On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

e$.$ Calculate the required return of a portfolio that has $$6,500$ invested in Stock $x$ and $$4,500$ invested in Stock $Y.$ Do not round intermediate calculations. Round your answer to two decimal places.

$r_p=$

f$.$ If the market risk premium increased to $6\%,$ which of the two stocks would have the larger increase in its required return?