Reference no: EM132616334
Question - Stock X has a 10% expected return, a beta coefficient of0.9, 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.
b) Which stock is riskier for a diversified investor?
c) Calculate each stock's required rate of return.
d) On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?
e) Calculate the required return of a portfolio that has Br. 7,500 invested in Stock X and Br. 2,500 invested in Stock Y.
f) If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?
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