Calculate each stock required rate of return

Assignment Help Financial Management

Reference no: EM131593011

Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 30% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 20.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

Calculate each stock's coefficient of variation. Round your answers to two decimal places.

CVx =

CVy =

Which stock is riskier for a diversified investor?

For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.

For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is more risky. Stock Y has the higher beta so it is more risky than Stock X.

For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y.

For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock X has the lower beta so it is more risky than Stock Y.

For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is more risky. Stock Y has the lower standard deviation so it is more risky than Stock X.

-Select-IIIIIIIVVItem 3

Calculate each stock's required rate of return. Round your answers to two decimal places.

rx = %

ry = %

On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

-Select-Stock XStock YItem 6

Calculate the required return of a portfolio that has $7,500 invested in Stock X and $7,000 invested in Stock Y. Round your answer to two decimal places.

rp = %

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

Reference no: EM131593011

Questions Cloud

Price quotation for boeing call option with strike price : The May 17, 2012, price quotation for a Boeing call option with a strike price of $88 due to expire in November is $30.30,

Dividends are expected to grow : XYZ company's common stock paid $2.50 in dividends last year. Dividends are expected to grow at a 12-percent annual rate forever.

What is standard deviation of these returns : What is the standard deviation of these returns?

Using the black-scholes opm-call option should be worth : The current stock price of Howard & Howard is $64, and the stock does not pay dividends. Using the Black-Scholes OPM, the call option should be worth __________

Calculate each stock required rate of return : Stock X has a 10.5% expected return, a beta coefficient of 1.0 and 30% standard deviation of expected returns. Calculate each stock's required rate of return.

Put option on stock with current price : You are considering purchasing a put option on a stock with a current price of $34.

Bradford required return exceed farley required return : By how much does Bradford's required return exceed Farley's required return?

You invest the money in stock with beta : If you invest the money in a stock with a beta of 1.45, what will be the required return on your $5.5 million portfolio?

Two mutually exclusive projects-reason for that decision : You are considering the following two mutually exclusive projects. what is the best reason for that decision?

User Account

All Pages