Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true about these securities. (Assume market equilibrium.) Group of answer choices Stock Y has a higher standard deviation than Stock X. Stock Y's realized return next year will be higher than Stock X's return. If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks will increase by the same amount. If you invest $50,000 in each of Stocks X and Y, your 2-stock portfolio will have a beta lower than 1.0. If the market risk premium declines, Stock X will have a larger decline in its required return than Stock Y.

Q: A stock has an expected return of 14.3 percent, the risk-free rate is 3.9 percent, and the market…

A: Given: Expected return = 14.3% Risk free rate = 3.9% Market risk premium = 7.8%

Q: During the coming year, the market risk premium (rm− rf), is expected to remain the same, while the…

A: The question is based on the concept of Financial analysis

Q: Suppose Autodesk stock has a beta of 2.20, whereas Costco stock has a beta of 0.72. If the risk-free…

A: Portfolio Return is that under which investor will invest his money in more than one stock of the…

Q: Consider the following information for stocks A, B, and C. The returns on the three stocks are…

A: The market risk premium is the return over risk-free return received by the investor for bearing an…

Q: A. Walmart has both more total risk and more systematic risk.     B. Walmart has more total risk and…

A: The standard deviation is measured by total risk hence, Intel stock has more standard deviation…

Q: Stocks A and B have the following probability distributions of expected future returns: Probability…

A: Since question involves multiple subparts , we will answer 1st sub 3 parts for you as per prescribed…

Q: Suppose the risk-free return is 4.1% and the market portfolio has an expected return of 9.3% and a…

A: In CAPM; Capital Asset Pricing Model, the expected return for a single stock is ascertained by…

Q: A stock has an expected return of 10.8 percent, its beta is .97, and the risk-free rate is 6.1…

A: Capital asset pricing model (CAPM) describes the relationship between the risk and return of the…

Q: Suppose the risk-free return is 4.0% and the market portfolio has an expected return of 10.0% and a…

A: Expected return can be calculated by using CAPM equation given below Expected return =Risk free…

Q: A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium. The required…

A: Given data; bets of stock = 2.0 Required rate of return on stock = 15% Required rate of return on…

Q: Consider the following information for stocks A, B, and C. The returns on the three stocks are…

A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…

Q: Stocks A and B have the following probability distributions of expected future returns: Probability…

A: Here, Risk-free rate = 2.5% To Find: Part a). Expected rate of return =? Part b). Standard…

Q: State whether each of the following is inconsistent with the CAPM. A security with only…

A: Answer: The decision on the investment can be taken based on the CAPM. The return that is required…

Q: Stocks A and B have the following probability distributions of expected future returns:…

A: 1.) Computation of the expected rate of return of stock A: Hence, the expected return of stock A is…

Q: A stock has an expected return of 13.1 percent, a beta of 1.28, and the expected return on the…

A: Given details are : Expected return on stock = 13.1% Beta = 1.28 Expected market return (Rm) = 11%…

Q: Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A…

A: According to CAPM: required return = risk free rate+beta×market risk premium

Q: Consider the following information for stocks A, B, and C. The returns on the three stocks are…

A: Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question…

Q: The beta coefficient for Stock C is βc = 0.4 and that for Stock D is βd = -0.5 (Stock D’s beta is…

A: Beta of C (Bc) = 0.4 Beta of D (Bd) = -0.5 Risk free rate = 9% Market return = 13%

Q: A stock has an expected return of 14.1 percent, a beta of 1.8, and the return on the market is 9.8…

A: Expected return (Re) = 14.1% Beta (B) = 1.8 Market return (Rm) = 9.8% Risk free rate = Rf

Q: The risk-free rate is 3 percent, the expected return on the PSEi is 13 percent, and its standard…

A: Here, Risk Free Rate is 3% Expected Return of Market is 13% Standard Deviation of Market is 23%…

Q: Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free…

A: Given the following information: Beta of MegaChip: 1.3 Beta of Littlewing: 0.7 Risk free rate: 4%…

Q: A stock has an expected return of 13.2 percent, the risk-free rate is 3.5 percent, and the market…

A: According to capital asset pricing model: rs=rf+beta×rm-rfwhere,rs=expected returnrm-rf=market risk…

Q: Consider the following information for stocks A, B, and C. The returns on the three stocks are…

A: Given, Expected return = 10.55% Risk-free rate of return (Rf) = 6.5% Beta = 0.9 CAPM model: Expected…

Q: Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here,…

A: In the given question we are required to calculate the Required rate of return of three stocks i.e.…

Q: Consider the following probability distribution for stocks A and B:    State   Probability…

A: We can calculate expected return and standard deviation by using following formulas Expected return…

Q: By how much does the required return on the riskier stock exceed the required return on the less…

A: Required return: It is the minimum rate of return an investor will seek for investing in a company.…

Q: Suppose Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown…

A: GIVEN, rjohn=6.8%rwal=10.5%σjohn=15.2%σwal=19.8%corr=21.4%wjohn=0.5wwal=0.5

Q: A stock has an expected return of 13.6 percent, the risk-free rate is 3.7 percent, and the market…

A: In the above question we require to compute the expected beta of the stock. This question can be…

Q: Consider the following information for Stocks A,B, and C. The returns on the three stocks are…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Suppose the risk-free return is 4.5% and the market portfolio has an expected return of 10.3% and a…

A: According to the market scenario, the stock prices are keep on changing with the changing market…

Q: Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate ofreturn on an average…

A: The riskiness of security is measured by "Beta". Beta measures the volatility of the stock with…

Q: The returns on each of the three stocks are positively correlated, but they are not perfectly…

A: As per CAPM   Ri = Rf + B (Rm - Rf) Where Ri = Return on equity Rf = Risk free rate of return B =…

Q: A stock has an expected return of 11.5 percent, the risk-free rate is 3.2 percent, and the market…

A: Expected return of a stock can be computed by using capital asset pricing model: Here, Expected…

Q: Stocks X and Y have the following probability distributions of expected future returns: Calculate…

A: Here, Probability X Y 0.3 90% -35% 0.4 15% 0 0.3 -60% 20 Expected rate of Return of X…

Q: Dotbomb’s stock has the following projected rates of return (outcomes): 10%, 15%, and 30%. The…

A: Portfolio Expected Return:  It is the sum weighted average rate of return of each security consist…

Q: A stock has a beta of 1.23, the expected return on the market is 11.9 percent, and the risk-free…

A: the expected return on this stock = risk free rate + beta*market risk premium

Q: t at PJ Brokers estimates that the beta of stock ZLX is close to two (2.0).  Therefore, ZLX will…

A: The expected rate of return depends on the risk of stock and risk of stock depends on the risk…

Q: Stock X has a beta of 0.6, while Stock Y has a beta of 1.4. Which of the following statements is…

A: Beta is a statistical measure which measures the risk involved in a particular stock.

Q: Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average…

A: In this we have to calculate expected return of both stock using CAPM model and find the difference.

Q: Suppose Target's stock has an expected return of 20% and a volatility of 40%, Hershey's stock has an…

A: T's expected return = 20% T's Volatility = 40% H's expected return = 10% H's Volatility = 21% New…

Q: Stocks A and B have the following probability distributions of expected future returns: Probability…

A: Here: Probability     A B 0.1 (11%) (38%) 0.2 5% 0% 0.5 13% 21% 0.1 18% 26% 0.1 31% 36%

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.