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FinanceQ&A LibraryStock 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 themarket 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 bemore attractive to a diversified 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 two stocks would have thelarger increase in its required return?Start your trial now! First week only $4.99!*arrow_forward*

Question

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 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 $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 two stocks would have the

larger increase in its required return?

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