Question: Stock X has a 9% expected return, a beta coefficient of 0.8 and a 30% standard deviation of expected returns. Stock Y has a 14%
Stock X has a 9% expected return, a beta coefficient of 0.8 and a 30% standard deviation of expected returns. Stock Y has a 14% expected return, a beta coefficient of 1.3 and a 20% standard deviation. The risk-free rate is 5% and the market risk premium is 6.5%. A) Calculate the coefficient of variation of each stock B) Which stock is riskier than the other stock? C) What is the required rate of return of each stock? D) Based on the answers of Part b and c which stock would be more attractive to a diversified investor? E) Calculate the required return of a portfolio that has $8,000 invested in Stock X and $2,000 invested in Stock Y. F) If the market risk premium increased to 7%, which of the two stock would have the larger increase in its required return
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