Question: 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%

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%.

1. Calculate each stocks coefficient of variation

2. Which stock would be more attractive to a diversified investor?

3. Calculate the required return of a portfolio that has $7500 invested in Stock X and $2500 invested in Stock Y

4. If the market risk premium increased to 6%, which of the 2 stocks would have the larger increase in its required return?

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