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You have observed the following returns over time. Assume that the risk free rate is 6% and the market risk premium is 5%.

Year Stock X Stock Y Market
2006 14% 13% 12%
2007 19% 7% 10%
2008 -16% -5% -12%
2009 3% 1% 1%
201020%11%15%

a. What are the betas for Stocks X and Y?
b. What are the required rates of return on Stocks X and Y?
c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?

 

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