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Problem 8-07

You are considering two stocks and have determined the following information:

Stock A	Return		Probability of the Return
	18	%	60	%
	12		20
	7		20

Stock B	Return		Probability of the Return
	31	%	15	%
	18		10
	10		75

1. Which of the two stocks has the higher expected return? Round your answers to two decimal places.

   The return on Stock A: %

   The return on Stock B: %

   -Select-Stock AStock BItem 3 has the higher expected return.

2. Which stock is riskier? Do not round intermediate calculations. Round your answers to two decimal places.

   Standard deviation of Stock A:

   Standard deviation of Stock B:

   -Select-Stock AStock BItem 6 is riskier.

3. Given your answers to the two previous questions, what stock is preferred?

   -Select-Stock AStock BItem 7 is preferred.