Stock Y has a beta of 1.0 and an expected return of 13.5 percent. Stock Z has a

Question

Stock Y has a beta of 1.0 and an expected return of 13.5 percent. Stock Z has a beta of 0.6 and an expected return of 9.0 percent. If the risk-free rate is 5.8 percent and the market risk premium is 6.8 percent, the reward-to-risk ratios for stocks Y and Z are and percent, respectively. Since the SML reward-to-risk is percent, Stock Y is and Stock Z is . (Round your answers to 2 decimal places. (e.g., 32.16))

expected return of 9.0 percent. If the risk-free rate is 5.8 percent and the market risk premium is 6.8 percent, the reward-to-risk ratios for stocks Y and Z are percent, the reward-to-risk ratios for s respectively. Since the SML reward-to-risk is Stock Z is l (Click to select) Round your answers to 2 decimal places. (e.g., 32.16)) and percent, 1 percent, Stock Y is percent, Stock Y is (Click to select)and (Click to select) and

Explanation / Answer

Risk/reward = (Expected Ret - Rf) / Beta

SML =Rf+beta*(Rm-Rf)

Stock y Stock Z Beta 1.00 0.60 Expected Return 13.50% 9.00% Risk free Return 5.80% 5.80% (Expected Return- Risk free Return) 7.70% 3.20% Risk Reward Ratio (Expected Ret - Rf) / Beta 0.077 0.053

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