Log in
Finance
1
answer
0
watching
68
views

Please shortly explain how they arrived at the answers below? Stock A has a beta of 1.5, and stock B has a beta of 1.0. Determine whether each of the statements below is true or false.
a. Stock A must have a higher standard deviation than Stock B. False
b. Stock A has a higher expected return than Stock B. True
c. The expected return on Stock A is 50 percent higher than the expected return on B. False

Watch
1
answer
0
watching
68
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Trinidad Tremblay
Trinidad TremblayLv2
29 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Evaluating risk and return Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 35% standard deviation of expected returns. Stock Y has a 13.0% expected return, a beta coefficient of 1.3, and a 20.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

a. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations.

CVx =

CVy =

b. Which stock is riskier for a diversified investor?

I.For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.

II.For diversified investors the relevant risk is measured by 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.

III.For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y.

IV.For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock X has the lower beta so it is more risky than Stock Y.

V.For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is more risky. Stock Y has the lower standard deviation so it is more risky than Stock X.

Select correct answer

c. Calculate each stock's required rate of return. Round your answers to two decimal places. rx = % ry = %

d.On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor? -Select-Stock XStock Y

e.Calculate the required return of a portfolio that has $6,500 invested in Stock X and $7,500 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places. rp = %

f. If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

-Select-Stock X or Stock Y

Evaluating risk and return

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 25.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations.
CVx =
CVy =

Which stock is riskier for a diversified investor?

For diversified investors the relevant risk is measured by 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.

For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y.

For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock X has the lower beta so it is more risky than Stock Y.

For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is more risky. Stock Y has the lower standard deviation so it is more risky than Stock X.

For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.


-Select-IIIIIIIVVItem 3

Calculate each stock's required rate of return. Round your answers to two decimal places.
rx = %
ry = %

On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?
-Select-Stock XStock YItem 6

Calculate the required return of a portfolio that has $4,500 invested in Stock X and $9,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.
rp = %

If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?
-Select-Stock XStock Y

1) In CAPM, if stock A has a standard deviation of 20% and stock B has a standard deviation of 35% then ______________

a) Stock A has more systematic risk than stock B

b) Stock A will have a higher expected return than stock B

c) Stock B will have a higher expected return than stock A

d) Stock A has more unsystematic risk than stock B

e) There is insufficient information to answer the question

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in