6. Problem 3.06 (Expected Returns) ebook Problem Walk Through Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (796) (2646) 0.2 6 0 0.5 16 21 0.1 24 0,1 35 46 a. Calculate the expected rate of retum, in for stock GA-144096.) Do not round intermediate clins Round your answer to two decimal places b. Calculate the standard deviation of expected returns, , for Stock A ( 18.364.) Do not found intermediate calculations. Round your answer to two decimal places Now calculate the coefficient of variation for Stock 8. Do not round intermediate calculations, Round your answer to two decimal places 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. 1 Stock 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. of Stock 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 is less highly correlated with the market than A, then might have a lower beta than Stock A, and hence be less risky in a portfoliose V. If Stock 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 portato sense. 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 Stock Are these calculations consistent with the information obtained from the coefficient of variation calculations in Port ? b. Calculate the standard deviation of expected returns, for Stock A (18.) Do not round intermediate clations. Round your answer to two decimal places Now calculate the coefficient of variation for Stock . Do not round intermediate cutations. Round your answer to two decimal places Is it possible that most westors regard to as being less risky than stock 1. Stock is more correlated with the market than then have a herbeta than stock and be less in a portfolio sense IL I Stock B is more y corried with the market than then mot have a lower beta the Stone be less risky in a portfolio sense 111. Stock is more tighly correlated with the market than the might have the same as Stock A, and hence the sky in a portfolosense IV. of Stock is les correlated with the market than then might have a lower breathan Stock hence be less risky in a portfolio sense. V. If Stock is less y correlated with the market than thengt have her beta than stock and hence be more risky in a portfense C. Assume the risk.free rate is 3.5. What are the sharperiod for Stocks A and B Do not round intermediate actions. Round your answers to four decimal places. Stock A: story Stocks Are these calcul consistent with the information obtained from the comment of variation calculations in Put B? 1. In a standalone risk sense is more risky than . Stock is less highly correlated with the market than then it mught have a higher beta than stock A, and hence be more risk in a portfolio 11. In a standalone risk sense A is less risky than stock is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as rasky in a portfolio III. In a standalone risk sense A is less risky than 3. stock is less highly correlated with the market than A then it might have a lower beta than stock A, and hence be less roky na portfoliose. IV. In a standalone risk sense is less risky than stock is less y correlated with the market than then it might have a higher beathan Stack A, and hence be more risky na portato sense V. In a stand-alone nsk sense is morensky than stock is less highly correlated with the market than A, then it might have a lower beta than stock and hence be less sky in a portiche
