Use the following to answer questions 23-27. You hold a fully diversified portfolio of stocks and are considering investing in the XYZ Company. The firm's prospects look good and you estimate the following probability distribution of possible returns:

Probability ----------------------- Return 70% -------------------------------- 15% 20% -------------------------------- 9% 10% -------------------------------- 20%

The return on the market is 13.5% and the risk free rate is 7%. You have calculated XYZ's beta from past returns as 1.3 and you believe this will be the future beta. 1. What is the expected return for XYZ? A) 14.30% B) 14.67% C) 33.33% D) 13.50% 2. What is the required return for XYZ according to the CAPM? A) 8.45% B) 13.50% C) 15.45% D) 24.55% 3. If the standard deviation of XYZ's distribution of possible returns is 3.03%, what is the coefficient of variation? A) 3.03% B) 4.72% C) 14.3% D) 21.2% 4. What is the excess return required for this stock? A) 6.5% B) 7% C) 8.45% D) 1.95% 5. Based on the information and calculations in the three questions above, should you buy stock in XYZ Company? A) Yes B) No