Evaluating Risk

The intent of this assignment is to demonstrate that you can evaluate the riskiness of a stock using statistical analysis. An important consideration in investing is not only the expected return, but the likelihood that you would receive that return. There is a trade-off between risk and return. In order to receive a higher return, you have to bear more risk. The risk can be evaluated by calculating the standard deviation and coefficient of a variation of the stock.

Use the blank table below to help you determine the standard deviation for the following stocks.

• Stock A will return a rate of 12% in a recession, 15% in normal conditions and 18% during a boom. The expected return is 15%.
• Stock B will return a rate of 7% in a recession, 15% in normal conditions and 23% during a boom. The expected return is 15%.

Additionally, use the standard deviation to determine the Coefficient of Variation. Finally, list the Range.

*Table Attached