(20%) 0 Probability 0.1 0.2 0.4 0.2 0.1 A (6%) 5 13 24 38 21 25 42 a. Calculate the expected rate of return, ro, for Stock B (A = 14.20%.) Do not round intermediate calculations. Round your answer to two decimal places. 134.16 X % b. Calculate the standard deviation of expected returns, on, for Stock A ( - 16.57%.) Do not round intermediate calculations. Round your answer to two decimal places. 275.38 X % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. 11.58 x Is it possible that most investors might regard Stock B as being less risky than Stock A? 1. 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. 11. 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. III. 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. IV. 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 portfolo sense. V. 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. C. Assume the risk-free rate is 1.5%. What are the Sharpe ratios for Stocks A and B? Do not round Intermediate calculations. Round your answers to four decimal places Stock A X Stock B: X 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 more risky than 3. 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 11. In a stand-alone risk sense A is more risky than B. 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. III. In a stand-alone risk sense A is less risky than B. 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. 111. In a stand-alone risk sense Als less risky than 8. 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. IV. In a stand-alone risk sense A is less risky than B. 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. V. In a stand-alone risk sense A is less risky than 8. 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 X
