Question

In: Finance

You have observed the following returns over time: Year Stock X Stock Y Market 2011 13...

You have observed the following returns over time:

Year Stock X Stock Y Market
2011 13 % 11 % 10 %
2012 20 7 9
2013 -13 -6 -10
2014 3 1 1
2015 20 11 17

Assume that the risk-free rate is 4% and the market risk premium is 6%.

  1. What is the beta of Stock X? Do not round intermediate calculations. Round your answer to two decimal places.

    What is the beta of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places.

  2. What is the required rate of return on Stock X? Do not round intermediate calculations. Round your answer to one decimal place.

    %

    What is the required rate of return on Stock Y? Do not round intermediate calculations. Round your answer to one decimal place.

    %

  3. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Do not round intermediate calculations. Round your answer to one decimal place.

    %

Solutions

Expert Solution

Given,

Year Stock X Stock Y Market
2011 13 % 11 % 10 %
2012 20 7 9
2013 -13 -6 -10
2014 3 1 1
2015 20 11 17

Risk free rate = 4%

Market risk premium = 6%

Solution :-


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