Computation of required return of a portfolio

Reference no: EM1316624

Computation of required return of a portfolio and risk factor analysis

Stock X has a 10% expected return, a beta coefficient of 0.9, 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 the required return of a portfolio that has $7500 invested in Stock X and $2500 invested in Stock Y.

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

Reference no: EM1316624

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