Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 40% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 20.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

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

CVx =

CVy =

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 returns. 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 return. Round your answers to two decimal places.

rx = %

ry = %

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

stock X or Y

e).- Calculate the required return of a portfolio that has $9,000 invested in Stock X and $2,500 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

rp = %

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

Stock X or Y