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(Solved): b. Which stock is riskier for a diversifled investor? I. For diversifled investors the relevant ris ...



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b. Which stock is riskier for a diversifled investor? I. For diversifled 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 has the lower standard deviation so it is more risky than Stock . II. For diversifled investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock has the higher beta so it is less risky than Stock X. III. For diversifled investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is more risky. Stock has the higher beta so it is more risky than Stock X. IV. For diversifled 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 has the higher standard deviation so it is more risky than Stock . V. For diversifled 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. c. Calculate each stock's required rate of return. Round your answers to two decimal places. d. On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversifled investor? e. Calculate the required return of a portfolio that has invested in Stock and invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places. f. If the market risk premium increased to , which of the two stocks would have the larger increase in its required return?


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Coefficient of variation:

Stock X: Expected return = 10%, Standard deviation = 40%




Stock Y: Expected r...
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