Reference no: EM132207994

Question - Stock X has a 5% expected return, a beta coefficient of 0.8, and a 35% standard deviation of expected returns. Stock Y has a 10% expected return, a beta coefficient of 1.5, and a 25% standard deviation. The risk-free rate is 2%, and the expected market return is 7%.

a. Calculate each stock's coefficient of variation.

b. Which stock is riskier for a well-diversified investor? Explain your answer.

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? Explain your answer.

e. Calculate the beta of a portfolio that has $7,500 invested in Stock X and $2,500 invested in Stock Y.

f. Calculate the required return of the portfolio in part e. g. If the expected market return increased to 10%, which of the two stocks would have the larger increase in its required return?