EXPECTED RETURNS Stocks X and Y have the following probability distributions of expected future returns:
Probability X Y 0.1 (10%) (35%)
0.2 2 0 0.4 12 20 0.2 20 25 0.1 38 45

a. Calculate the expected rate of return, rY, for Stock Y rX 12% .

b. Calculate the standard deviation of expected returns, X, for Stock X Y 20 35% .
Now calculate the coefficient of variation for Stock Y. Is it possible that most investors will regard Stock Y as being less risky than Stock X? Explain.AppendixLO1