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# The Standard Deviations and expected rates of return, r ^, r with a hat, are listed below for 5 stocks. Calculate the Coefficient of Variations for...

The Standard Deviations and expected rates of return, r ^, r with a hat, are listed below for 5 stocks. Calculate the Coefficient of Variations for each.

Stock STANDARD DEVIATIONS EXPECTED R OF R, r^ CV

A 5% 20% ____

B 6% 24% ____

C 7% 28% ____

D 8% 32% ____

E 20% 80% ____

Which stock is the riskiest stock? ____________

Explain

**The risk free rate on a stock is 3%, the required rate in the market is 7%, and the beta is 1.6. This is the original position. Calculate the required rate of return, r.**

Based on the above, now assume that inflation is expected to increase by 2%. Calculate the required rate of return. 2 points, show work

**What happens to the SML?** Circle one: Shifts Up or Shifts Down or Pivots Up or Pivots Down

**What happens to the slope?** Circle one: Slope remains the same or Slope gets steeper or Slope gets flatter

Now assume that inflation is expected to decrease by 1%. Calculate the required rate of return.

**What happens to the SML?** Circle one: Shifts Up or Shifts Down or Pivots Up or Pivots Down

**What happens to the slope?** Circle one: Slope remains the same or Slope gets steeper or Slope gets flatter

Now assume that investors are fearful, uneasy, with the current market situation and require a **higher **rate of return in the market. Thus, rm increases by 2.5%. Calculate the required rate of return.

**What happens to the SML?** Circle one: Shifts Up or Shifts Down or Pivots Up or Pivots Down

**What happens to the slope?** Circle one:Slope remains the same or Slope gets steeper or Slope gets flatter

Now assume that investors are confident, at ease, with the current market situation and require a **lower **rate of return in the market. Thus, rm decreases by 1%. Calculate the required rate of return.

**What happens to the SML?** Circle one:Shifts Up or Shifts Down or Pivots Up or Pivots Down

**What happens to the slope?** Circle one:

Slope remains the same or Slope gets steeper or Slope gets flatter