Problem 8-6 Expected returns

Stocks X and Y have the following probability distributions of expected future returns:

Probability	X	Y
0.1	-6%	-25%
0.2	4	0
0.4	14	23
0.2	21	29
0.1	37	36

Calculate the expected rate of return, rY, for Stock Y (rX = 13.70%.) Round your answer to two decimal places. %__

Calculate the standard deviation of expected returns, X, for Stock X (Y = 17.68%.) Round your answer to two decimal places. %__

Now calculate the coefficient of variation for Stock Y. Round your answer to two decimal places.

__

A.)Is it possible that most investors might regard Stock Y as being less risky than Stock X? (CHOOSE ONE)

B.)If Stock Y is less highly correlated with the market than X, then it might have a lower beta than Stock X, and hence be less risky in a portfolio sense.

C.)If Stock Y is less highly correlated with the market than X, then it might have a higher beta than Stock X, and hence be more risky in a portfolio sense.

D.)If Stock Y is more highly correlated with the market than X, then it might have a higher beta than Stock X, and hence be less risky in a portfolio sense.

E.)If Stock Y is more highly correlated with the market than X, then it might have a lower beta than Stock X, and hence be less risky in a portfolio sense.

F.)If Stock Y is more highly correlated with the market than X, then it might have the same beta as Stock X, and hence be just as risky in a portfolio sense.