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Problem #4: EXPECTED RETURNS Stocks X and Y have the following probability distributions of expected future returns: TM Probability X 0.1 (10%) (35%) 0.2 2
Problem #4: EXPECTED RETURNS Stocks X and Y have the following probability distributions of expected future returns: TM Probability X 0.1 (10%) (35%) 0.2 2 0 0.4 12 20 0.2 20 25 0.1 38 45 a. Calculate the expected rate of return, ty, for Stock Y ( 12"%), b. Calculate the standard deviation of expected returns, o for Stock X (oy-20.35%). Now calculate the coefficient of variation for Stock Y. Is it possible that most investors will regard Stock Y as being less risky than Stock X? Explain
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