cocks A and B have the following probability distributions of expected future returns: B A Probability (7% ) (39%) 0.2 0 0.1 22 0.1 15 26 23 0.4 35 36 0.2 a. Calculate the expected rate of return, Fa, for Stock B (FA 16.70 %. ) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, aA, for Stock A (os- 27.00 %. ) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. 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 lower beta than Stock A, and hence be less risky in a portfolio sense. 11. 1f 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. I11. If Stock 8 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. TV. 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. V. I 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, c. Assume the risk-free rate is 3.0%. What are the Sharpe ratios for Stocks A and 8? Do not round intermediate calculations. Round your answers to two decimal places. Stock A Stock B: Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b? L. In a stand-alone risk sense A is less risky than B. If Stock B is less highly comrelated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. II. In a stand-alone risk sense A is more risky than 8. 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. III. In a stand-alone risk sense A is more 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 IV. 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 nsky in a portfolio sense. V. In a stand-alone risk sense A is less risky than B. If Stock B is less highly corelated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense
