Silver Industries' Y shares have an expected return of 15%, a beta coefficient of 0.8 and a standard deviation of expected returns of 31%. The company's Z shares have an expected return of 11.3%, a beta coefficient of 1.5 and a standard deviation of 25%. The risk-free rate is 5% and the market risk premium is 4%. a. Determine the coefficient of variation of each stock. b. Explain which stock is more risky for diversified investors. c. Calculate the expected rate of return for both stocks.
Silver Industries' Y shares have an expected return of 15%, a beta coefficient of 0.8 and a standard deviation of expected returns of 31%. The company's Z shares have an expected return of 11.3%, a beta coefficient of 1.5 and a standard deviation of 25%. The risk-free rate is 5% and the market risk premium is 4%. a. Determine the coefficient of variation of each stock. b. Explain which stock is more risky for diversified investors. c. Calculate the expected rate of return for both stocks.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Silver Industries' Y shares have an expected return of 15%, a beta coefficient of 0.8 and a standard deviation of expected returns of 31%. The company's Z shares have an expected return of 11.3%, a beta coefficient of 1.5 and a standard deviation of 25%. The risk-free rate is 5% and the market risk premium is 4%.
a. Determine the coefficient of variation of each stock.
b. Explain which stock is more risky for diversified investors.
c. Calculate the expected
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