1.

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

Probability	A	B
0.2	(12%)	(32%)
0.2	3	0
0.3	16	21
0.2	23	25
0.1	39	49

Calculate the expected rate of return, rB, for Stock B (rA = 11.50%.) Do not round intermediate calculations. Round your answer to two decimal places. %

Calculate the standard deviation of expected returns, A, for Stock A (B = 24.62%.) Do not round intermediate calculations. Round your answer to two decimal places. %

Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places.

Is it possible that most investors might regard Stock B as being less risky than Stock A?

-If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense.

-If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

-If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.

-If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in a portfolio sense.

-If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

2.

PORTFOLIO REQUIRED RETURN

Suppose you are the money manager of a $4.49 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Investment	Beta
A	$ 320,000	1.50
B	460,000	(0.50)
C	1,060,000	1.25
D	2,650,000	0.75

If the market's required rate of return is 10% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.