You are thinking of investing in one of the two stocks, stock X or stock Y. Stock X has a weighted average cost of capital (WACC) of 13%, a cost of debt of 6% after tax and a debt-to-equity ratio of 0.3. The market return is 9% and the risk free rate is 2.5% and it has been for the past five years. Both stocks have for the past four years had the following returns:

	Year 2012	Year 2013	Year 2014	Year 2015
Stock X	+20%	+15%	-7%	+8%
Stock Y	+11.25%	+8.75%	-2.25%	+5.25%

Assuming that the risk of the above stocks has been constant for the past five years, which of the stocks would you invest in if you want your expected return to be as high as possible, and what is the return you will demand for each stock?

(Note that the time period depicted in the table above is too short to be used for both beta-calculations and estimations of expected return. Start with finding what you can through using the WACC and CAPM formulas. Then find the risk premium for each stock using the above table to complete your calculations.)