7q

Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return?

Common Stock A Common Stock B

Probability Return Probability Return

0.20 12% 0.10 -6%

0.60 14% 0.40 5%

0.20 20% 0.40 15%

0.10 23%

a.Given the information in the table, the expected rate of return for stock A is

enter your response here%.

(Round to two decimal places.)

Part 2

The standard deviation of stock A is

enter your response here%.

(Round to two decimal places.)

Part 3

b.The expected rate of return for stock B is

enter your response here%.

(Round to two decimal places.)

Part 4

The standard deviation for stock B is

enter your response here%.

(Round to two decimal places.)

Part 5

c.Based on the risk (as measured by the standard deviation) and return of each stock, which investment is better?(Select the best choice below.)

A.

Stock A is better because it has a higher expected rate of return with less risk.

B.

Stock B is better because it has a lower expected rate of return with more risk.