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Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 40% standard...

Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 40% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 30.0% 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.

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Expert Solution

CalculatingCoefficient of Variation:

Coefficient of Variation = Standard Deviation / ExpectedReturn

           The coefficient of variation allows you to determine how much volatility (risk) you are assuming in comparison to the amount of return you can expect from your investment.

Stock X: Coefficient Variation = 0.4 / 0.105

                                                           

                 Stock X - CoefficientVariation = 3.81

Stock Y: Coefficient Variation = 0.3 / 0.12

                  Stock Y –Coefficient Variation = 2.5

jeff jeffy answered 2 years ago
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