Stock X has a 9.5% expected return, a beta coefficient of 0.8,and a 35% standard deviation of expected returns. Stock Y has a12.0% expected return, a beta coefficient of 1.1, and a 20.0%standard deviation. The risk-free rate is 6%, and the market riskpremium is 5%. Calculate each stock's coefficient of variation.Round your answers to two decimal places. Do not round intermediatecalculations. CVx = CVy = Which stock is riskier for a diversifiedinvestor? For diversified investors the relevant risk is measuredby 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. Fordiversified investors the relevant risk is measured by standarddeviation of expected returns. Therefore, the stock with the higherstandard deviation of expected returns is more risky. Stock X hasthe higher standard deviation so it is more risky than Stock Y. Fordiversified investors the relevant risk is measured by beta.Therefore, the stock
with the lower beta is more risky. Stock X has the lower beta soit is more risky than Stock Y. For diversified investors therelevant risk is measured by standard deviation of expectedreturns. Therefore, the stock with the lower standard deviation ofexpected returns is more risky. Stock Y has the lower standarddeviation so it is more risky than Stock X. For diversifiedinvestors the relevant risk is measured by beta. Therefore, thestock with the higher beta is less risky. Stock Y has the higherbeta so it is less risky than Stock X. Calculate each stock'srequired rate of return. Round your answers to two decimal places.rx = % ry = % On the basis of the two stocks' expected and requiredreturns, which stock would be more attractive to a diversifiedinvestor? Calculate the required return of a portfolio that has$7,000 invested in Stock X and $8,500 invested in Stock Y. Do notround intermediate calculations. Round your answer to two decimalplaces. rp = % If the market risk premium increased to 6%, which ofthe two stocks would have the larger increase in its requiredreturn?
