2. Problem 8.06 (Expected Returns) eBook Problem Walk-Through Stocks A and B have the following probability distributions of expected future returns: Probability 0.1 (10%) (25%) 0.2 5 0 04 13 20 02 24 27 0.1 34 a. Calculate the expected rate of return, Te, for Stack BATA = 13.40%.) Do not round intermediate calculations, Bound your answer to two decimal places : & b. Calculate the standard deviation of expected retums, B. for Stock A ( - 18.774.) Do not round intermediate calculations. Round your answer to two decimal places. Now calculate the comident of variation for Stock 8. Do not round Intermediate calculations. Sound your awer to two decimal places Is it possible that most investors might regard Stock as being less risky than Stock A? 1. I Stock B is less highly correlated with the market than then it might have lower beathan Stock A, and hence be less risky in a portfolio sense 11. 17 Stock B is less highly correlated with the market than A, then it might have a higher beathan Stock A. and hence be more risky in a portfolio sense III. If Stock B is more highly correlated with the market than A, then it might have a higher beathan Stock A and hence be less risky in a portfolio sense IV. I 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 V. I Stock is more highly correlated with the market than then it might have the same beta as Sto A. and hence be just as risky in a portfolio sense Is it possible that most investors might regard Stock as being less risky than Stock A? 1. IF Stock 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 11. I 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 m. If Stock 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. IV. 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 V. If Stock B is more highly correlated with the market than A, then it might have the same betaas Stock A, and hence be just as risky in a portfolio sense. Select c. Assume the risk-free rate is 3.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places Stock A: Stock : Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b? 1. In a stand-alone risk sense A is less risky than B. If Stock B is lens 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 11. In a stand-alone risk sense A is less nisky than B. Ir Stock 8 is less highly correlated with the market than then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense III. In a stand-alone risk sense A is more risky than 3. If Stock Bis 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 IV. In a stand-alone nisk sense A is more risky than B. I 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 V. In a stand-alone risk sense A is less risky than B. I Stock s more highly correlated with the market than A than it might have the same beta as Stock A, and hence be just as risky in a portfolio sense -Select