Stocks coefficient of variation, required rate return and risk analysis
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) Calculate each stock's coefficient of variation.
b) Which stock is riskier for a diversified investor?
c) Calculate each stock's required rate return.
d) On the basis of the two stock's expected and required returns, which stock would be more attractive to a diversified investor?