Evaluating risk and return 1 2 3 Expected return of Stock X 4 Beta coefficient of Stock X 5 Standard deviation of Stock X returns 9.50% 0.80 40.00% 6 Expected return of Stock Y Beta coefficient of Stock Y 8 Standard deviation of Stock Y returns 7 12.00% 1.10 25.00% 10 Risk-free rate (rRE) 11 6.00% Market risk premium (RP,) 12 5.00% 13 14 Dollars of Stock X in portfolio 15 Dollars of Stock Y in portfolio 16 17 Coefficient of Variation for Stock X 18 Coefficient of Variation for Stock Y 19 20 $4,000.00 $5,500.00 Formulas #N/A #N/A Riskier stock to a diviersified investor 21 #N/A 22 Required return for Stock X 23 Required return for Stock Y 24 #N/A #N/A Stock more attractive to a diversified investor 25 #N/A 26 Required return of portfolio containing 27 Stocks X and Y in amounts above #N/ A 28 New market risk premium 29 6.00% With new market risk premium, stock with larger 30 increase in required return #N/A 31 Check 32 New required return, Stock X 34 33 #N/A Change in required return, Stock X 35 #N/A 36 New required return, Stock Y 37 Change in required return, Stock Y 38 39 Stock with greater change in required return #N/A #N/A #N/A 40 41