Excel Online Structured Activity: Evaluating risk and return

analysis to answer the questions below.

Open spreadsheet

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

$C{V}_x=$

$C{V}_y=$

b$.$ Which stock is riskier for a diversified investor?

risky. Stock $x$ has the higher standard deviation so it is more risky than Stock $Y.$

Stock $Y$ has the lower standard deviation so it is more risky than Stock $x.$

c$.$ Calculate each stock's required rate of return. Round your answers to two decimal places.

$r_x=$

$r_y=$

d$.$ On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

places.

Evaluating risk and return

Expected return of Stock $x$

$4$ Beta coefficient of Stock $x$

$5$ Standard deviation of Stock $x$ returns

$6$

$7$ Expected return of Stock $Y$

$8$ Beta coefficient of Stock $Y$

$9$ Standard deviation of Stock $Y$ returns

$10$

$11$

$12$

$13$

$14$

$15$

$16$

$17$

$18$

Coefficient of Variation for Stock $x$

$19$

$20$

$22$ Required return for Stock $x$

$23$ Required return for Stock $Y$

$25$ Stock more attractive to a diversified investor

$27$ Required return of portfolio containing

Stocks $x$ and $Y$ in amounts above

$30$ With new market risk premium, stock with larger

increase in required return

$32$ Check:

$33$ New required return, Stock $x$

$34$ Change in required return, Stock $x$

$36$ New required return, Stock $Y$

$37$ Change in required return, Stock $Y$

Stock with greater change in required return

B

C

Risk$-$free rate $(r_{RF})$

Coefficient of Variation for Stock $Y$

$12\mathrm{.}00\%$

Riskier stock to a diviersified investor

Dollars of Stock $x$ in portfolio

Dollars of Stock $Y$ in portfolio

$1\mathrm{.}10$

$30\mathrm{.}00\%$

Market risk premium $(R_M)$

$6\mathrm{.}00\%$