Question
Stock X has a 9.0% expected return, a beta coefficient of 0.7, and a 40% standard deviation of expected returns. Stock Y has a 12.5%
Stock X has a 9.0% expected return, a beta coefficient of 0.7, and a 40% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 25% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.
a) Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places.
CVx =
CVy =
b) Calculate each stock's required rate of return. Round your answers to one decimal place.
rx = %
ry = %
c) On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?
d) Calculate the required return of a portfolio that has $3,000 invested in Stock X and $1,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.
rp = %
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