Question

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of expected returns. Stock Y has a 13.0% expected return, a beta coefficient of 1.3, and a 30% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places.

CVx =
CVy =

Answer 1

The coefficient of variation (CV) measures the risk per unit of return for an investment. CV can be calculated by dividing the standard deviation of expected returns by the expected return and multiplying by 100. The CV for Stock X is 4.21% and for Stock Y is 2.31%.

Step-by-step explanation:

The coefficient of variation (CV) measures the risk per unit of return for an investment. To calculate the CV, divide the standard deviation of the expected returns by the expected return, and then multiply by 100 to get a percentage. For Stock X, the CV can be calculated as:

CVx = (Standard Deviation of Expected Returns for Stock X / Expected Return for Stock X) * 100

CVx = (0.4 / 9.5) * 100 = 4.21%

For Stock Y, the CV can be calculated as:

CVy = (Standard Deviation of Expected Returns for Stock Y / Expected Return for Stock Y) * 100

CVy = (0.3 / 13.0) * 100 = 2.31%