tock X has an expected return of $14$ percent, a beta coefficient of $1\mathrm{.}8.$ Stock Y has an expected return

of $15$ percent and a beta coefficient of $2\mathrm{.}4.$ The risk$-$free rate is $1\mathrm{.}5$ percent and the market risk premium

is $6$ percent. On the basis of the two stocks$$ expected and required returns, which stock would be most

attractive to a diversified investor?

a$.$ Stock Y since its expected return is $1\%$ higher than X$$s expected return.

b$.$ Stock X since the expected return for X exceeds the required return by $1\mathrm{.}7\%.$

c$.$ Stock Y since the required return for Y exceeds the expected return by $0\mathrm{.}9\%.$

d$.$ Both stocks are attractive to a diversified investor.

e$.$ Neither stock is attractive to a diversified investor.

Use the following information for the next two problems:

The expected returns for Stocks A and B have the following probability distributions:

State of the Economy Probability Stock A Stock B

Below average $0\mathrm{.}15-12\%-15\%$

Average $0\mathrm{.}601316$

Above average $0\mathrm{.}251828$

vi Calculate the expected rate of return for Stock A$.$

a$.14\mathrm{.}35$ percent

b$.10\mathrm{.}50$ percent

c$.19\mathrm{.}00$ percent

d$.14\mathrm{.}10$ percent

e$.12\mathrm{.}25$ percent

vii Calculate the coefficient of variation for Stock B$,$ assuming B$\text{'}$s expected return is $14\mathrm{.}35\%.$

$($Keep $4$ decimals throughout problem.$)$

a$.9\mathrm{.}6825$

b$.0\mathrm{.}9421$

c$.1\mathrm{.}2686$

d$.1\mathrm{.}3251$

e$.0\mathrm{.}9282$