xcel Online Structured Activity Evaluating risk and return Stock X has a 9 5 expected return, a beta coefficient of 0 8, and a 40 standard deviation of expected returns Stock Y has a 12 0 expected return, a beta coefficient of 1 1, and a 30 0 standard deviation The risk free rate is 6 , and the market risk premium is 5 The data has been collected in the Microsoft Excel Online file below Open the spreadsheet and perform the required analysis to answer the questions below Open spreadsheet Calculate each stock's coefficient of variation Round your answers to two decimal places Do not round intermediate calculations CV x CV y Which stock is riskier for a diversified investor 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 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 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 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 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 IIIIIIIVV Calculate each stock's required rate of return Round your answers to two decimal places r x r y On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor Stock XStock Y Calculate the required return of a portfolio that has $4,000 invested in Stock X and $3,000 invested in Stock Y Do not round intermediate calculations Round your answer to two decimal places r p If the market risk premium increased to 6 , which of the two stocks would have the larger increase in its required return Stock XStock Y

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 11, 2024

xcel Online Structured Activity: Evaluating risk and return Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation

xcel Online Structured Activity: Evaluating risk and return

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 30.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

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

CV_x =

CV_y =
Which stock is riskier for a diversified investor?
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
_____IIIIIIIVV
Calculate each stock's required rate of return. Round your answers to two decimal places.

r_x = %

r_y = %
On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

_________Stock XStock Y
Calculate the required return of a portfolio that has $4,000 invested in Stock X and $3,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

r_p = %
If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

_________Stock XStock Y