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EXPECTED RETURNS Stocks X and Y have thefollowing probability distributions of expected futurereturns: Probability X Y 0.1 (10%) (35%) 0.2 2 0 0.4 12 20
EXPECTED RETURNS Stocks X and Y have thefollowing probability distributions of
expected futurereturns:
Probability X Y
0.1 (10%) (35%)
0.2 2 0
0.4 12 20
0.2 20 25
0.1 38 45
a. Calculatethe expected rate of return, ry, for Stock Y (rx = 12%).
b. Calculatethe standard deviation of expected returns, ox, for Stock X (oy =20.35%). Now calculate the coefficient of variation for Stock Y. Is itpossible that most investors will regard Stock Y as being less risky than StockX? Explain.
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