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Question

Historical Returns: Expected and Required Rates of Return

You have observed the following returns over

time:


Year 2012 2013 2014 2015 2016


Stock X 15% 17 -18 3 18


Stock Y 11% 7 -6 1 8


Market 11% 11 -13 2 17


Assume that the risk-free rate is 3% and the market risk premium is 6%. Do not round intermediate calculations.

What is the beta of Stock X? Round your answer to two decimal places.

What is the beta of Stock Y? Round your answer to two decimal places.

What is the required rate of return on Stock X? Round your answer to one decimal place.

What is the required rate of return on Stock Y? Round your answer to one decimal place.

What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Round your answer to one decimal place.

Top Answer

Stock X's beta = 2 Stock Y's beta = 1.33 Stock X's... View the full answer

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