Question
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.2 (13%) (32%) 0.2 2 0 0.3
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.2 (13%) (32%) 0.2 2 0 0.3 14 19 0.2 22 28 0.1 36 37 Calculate the expected rate of return, rB, for Stock B (rA = 10.00%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, A, for Stock A (B = 23.08%.) 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? 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. 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. 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. 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. 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.
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