EVALUATING RISK AND RETURN Stock X has a 10 5 expected return, a beta coefficient of 1 0, and a 35 standard deviation of expected returns Stock Y has a 12 5 expected return, a beta coefficient of 1 2, and a 30 0 standard deviation The risk free rate is 6 , and the market risk premium is 5 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 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 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 Select IIIIIIIVVItem 3 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 Select Stock XStock YItem 6 Calculate the required return of a portfolio that has $7,000 invested in Stock X and $3,500 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 Select Stock XStock YItem 8

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

Question: EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 35% standard deviation of expected returns. Stock

EVALUATING RISK AND RETURN

Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 35% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 30.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

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 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.
2. 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.
3. 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.
4. 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.
5. 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.
-Select-IIIIIIIVVItem 3
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? -Select-Stock XStock YItem 6
Calculate the required return of a portfolio that has $7,000 invested in Stock X and $3,500 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? -Select-Stock XStock YItem 8

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 35% standard deviation of expected retums, Stock Y has a 12.5% expected retum, a beta coefficient of...

EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 40% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of...

Problem 8-19 Evaluating risk and return Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 40% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta...

Please provide explanation. Thank you EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 30% standard deviation of expected returns. Stock Y has a 13.0%...

EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 30% standard deviation of expected returns. Stock Y has a 13.0% expected return, a beta coefficient of...

Please, i need all answers Ch 08: End-of-Chapter Problems - Risk and Rates of Return EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 35% standard...

Excel Online Structured Activity: Evaluating risk and return Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 30 % standard deviation of expected returns. Stock Y has a 12.5%...

EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 35% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of...

EVALUATING RISK AND RETURN Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 35% standard deviation of expected retums. Stock Y has a 12.5% expected return, a beta coefficient of...

Refer the Auditing in Practice feature, Accepting a New Audit Engagement. Assume that an auditor is following U.S. auditing standards. What communication must an auditor of a new client have? How...

Mirion Tech, Inc., has rE of 12%, an rD of 6%, at a debt-equity ratio of 0.50. Mirion plans to raise enough preferred stock to retire half of their outstanding common stock, which currently has a...

A motel had budgeted an occupancy of 8,000 rooms with a selling price of$82 per room and a variable housekeeping cost of $4.40 per room. Actual data indicated that a total of 8,480 rooms were sold at...

9. (15 points) A company is considering a new project that requires an investment of \$5 million. The project is expected to generate cash flows of $2 million in year 1,$3 million in year 2, and $4...

1. The Kings Speech centers on Alberts address to the British people on September 3, 1939, at the outbreak of World War II, audio recordings of which are available online. Listen to them, and...

Presentations Approaches to Conveying Information

2. While in class, select a partner and give a one- to two-minute impromptu speech on a topic of your choice. Your partner will write down both negative and positive feedback to share with you, and...