The Standard Deviations and expected rates of return, r ^, r with a hat, are listed below for 5 stocks.Calculate the Coefficient of Variations for each.

StockSTANDARD DEVIATIONSEXPECTED R OF R, r^CV

A5%20%____

B6%24%____

C7%28%____

D8%32%____

E20%80%____

Which stock is the riskiest stock?____________

Explain

The risk free rate on a stock is 3%, the required rate in the market is 7%, and the beta is 1.6. This is the original position.Calculate the required rate of return, r.

Based on the above, now assume that inflation is expected to increase by 2%.Calculate the required rate of return. 2 points, show work

What happens to the SML?Circle one: Shifts Up or Shifts Down or Pivots Up or Pivots Down

What happens to the slope?Circle one: Slope remains the same or Slope gets steeper or Slope gets flatter

Now assume that inflation is expected to decrease by 1%.Calculate the required rate of return.

What happens to the SML?Circle one: Shifts Up or Shifts Down or Pivots Up or Pivots Down

What happens to the slope?Circle one: Slope remains the same or Slope gets steeper or Slope gets flatter

Now assume that investors are fearful, uneasy, with the current market situation and require a higher rate of return in the market. Thus, r_m increases by 2.5%.Calculate the required rate of return.

What happens to the SML?Circle one: Shifts Up or Shifts Down or Pivots Up or Pivots Down

What happens to the slope?Circle one:Slope remains the same or Slope gets steeper or Slope gets flatter

Now assume that investors are confident, at ease, with the current market situation and require a lower rate of return in the market.Thus, r_m decreases by 1%.Calculate the required rate of return.

What happens to the SML?Circle one:Shifts Up or Shifts Down or Pivots Up or Pivots Down

What happens to the slope?Circle one:

Slope remains the same or Slope gets steeper or Slope gets flatter