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.
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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Transcribed Image Text: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.
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