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Stock X has a 9 . 0 % expected return, a beta coefficient of 0 . 7 , and a 3 5 % standard deviation
Stock X has a expected return, a beta coefficient of and a standard deviation of expected returns. Stock Y has a expected return, a beta
coefficient of and a standard deviation. The riskfree rate is and the market risk premium is
a Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places.
b Which stock is riskier for a diversified investor?
I. 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 riskier. Stock has the higher standard deviation so it is riskier than Stock
II For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is riskier. Stock has the lower beta so it is
riskier than Stock Y
III. 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 riskier. Stock has the lower standard deviation so it is riskier than Stock X
IV For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock has the higher beta s
it is less risky than Stock
V For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is riskier. Stock has the higher beta so it
is riskier than Stock
Select
c Calculate each stock's required rate of return. Round your answers to one decimal place.
d On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?
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e Calculate the required return of a portfolio that has $ invested in Stock and $ invested in Stock Y Do not round intermediate calculations. Rounc
your answer to two decimal places.
f If the market risk premium increased to which of the two stocks would have the larger increase in its required return?
Select
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