Question 1

Stock X has a 10% expected return, a beta coefficient of 0.9, and a 35% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 25% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. a. Calculate each stock's coefficient of variation (CV) and comment on its risk-adjusted returns b. Calculate each stock's required rate of return and discuss which stock would be more attractive to a diversified investor? c. Calculate the required return and standard deviation of a portfolio that has RM7,500 invested in Stock X and RM2,500 invested in Stock Y. (assuming that the covariance is 12) d. If the market risk premium increased to 6%, which of the 2 stocks would have the larger increase in its required return? Discuss.The Windy Company reported the following income statement for 2020: Sales $ 15,000,000 Less: Operating expenses Wages, salaries, benefits $ 6,000,000 Raw materials 3,000,000 Depreciation 1,500,000 General, administrative, and selling expenses 1,500,000 Total operating expenses 12,000,000 Earnings before interest and taxes (EBIT) $ 3,000,000 Less: Interest expense 750,000 Earnings before taxes $ 2,250,000 Less: Income taxes 1,000,000 Earnings after taxes $ 1,250,000 Less: Preferred dividends 250,000 Earnings available to common stockholders $ 1,000,000 Earnings per share-250,000 shares outstanding 4.00 Assume that all depreciation and 75 percent of the firm's general, administrative, and selling expenses are fixed costs and that the remainder of the firm's operating expenses are variable costs