1.Stock X has a beta of 1.48 and stock Y has a beta of 0.64.Assume the risk-free rate is 2.0% and the market risk premium is 6.0%.Over the past ten years, stock X has had an average return of 13.25%, with a standard deviation of 48.5%%, and stock Y has had an average return of 7.15%, with a standard deviation of 31.6%%.

a.What is the expected return on stock X and stock Y?

b.What would be the beta and expected return of a portfolio in which twice as much is invested in stock X than in stock Y?

c.What is the abnormal return on stock X and on stock Y?

d.Compute the Sharpe and Treynor ratios for stock X.

e.Compute the coefficient of variation (CV) for each of the stocks.

2.Standard deviation measures the total risk of a stock, while beta measures the systematic risk of a stock.Explain why it is possible for the standard deviation of stock B to be lower than the standard deviation of stock A, while at the same time the beta of stock B is higher than the beta of stock A.

3.Write down mathematically the coefficient of variation (CV).What do we know/learn if we observe that stock A's CV is higher than stock B's CV?