6)

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

Probability	A	B
0.1	(9%)	(36%)
0.2	5	0
0.3	12	18
0.2	24	30
0.2	38	50

Calculate the expected rate of return, rB, for Stock B (rA = 16.10%.) Do not round intermediate calculations. Round your answer to two decimal places. %______

Calculate the standard deviation of expected returns, A, for Stock A (B = 24.29%.) Do not round intermediate calculations. Round your answer to two decimal places. %______

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

________

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

I. 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.

II. 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 portfolio 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.