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Stock X has a 10% expected return, a beta coefficent of 0.9, and a 35% standard deviation of expected returns. Stock Y has 12.5% expected return, a beta coefficent 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 diversifed investor?
C. Calculate each stocks required rate of return.
D. On the basis of the two stocks expected and required returns, which stock would be more attractive to a diversifed investor?
E. Calculate the required return of a portfolio that has $7,500 invested in Stock X and $2,500 invested in Stock Y.
F. If the market risk premium increased to 6% which of the following of the two stocks would have the larger increase in its required return?
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