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. Which stock is riskier for a diversified investor? b. Calculate 50/50 portfolio's required rate of return and market rate. c. Calculate the required return of a portfolio that has $7,500 invested in Stock X and $2,500 invested in Stock Y.

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. Which stock is riskier for a diversified investor? b. Calculate 50/50 portfolio's required rate of return and market rate. c. Calculate the required return of a portfolio that has $7,500 invested in Stock X and $2,500 invested in Stock Y.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P

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