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problem: Stock A has a 10 percent expected return, a beta coefficient of 0.9, & a 35% standard deviation of expected returns. Stock B has a 12.5 percent expected return, a beta coefficient of 1.2, & a 25% standard deviation. The risk-free rate is 6%, & the market risk premium is 5 percent.

[A] Compute each stock's coefficient of variation.

[B] Find which stock is riskier for a diversified investor?

[C] Compute each stock's required rate return.

[D] On the basis of the two stock's expected & required returns, determine which stock would be more attractive to a diversified investor?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M920220

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