Problem App1-02

Your rate of return expectations for the stock of Kayleigh Cosmetics Company during the next year are:

KAYLEIGH COSMETICS CO.
Possible Rate of Return	Probability
-0.45		0.20
-0.25		0.10
0.10		0.10
0.40		0.20
0.65		0.25
0.70		0.15

Your rate of return expectations for the common stock of Gray Cloud Company during the next year are:

GRAY CLOUD CO.
Possible Rate of Return	Probability
-0.20		0.20
-0.10		0.10
0.05		0.35
0.20		0.35

1. Compute the expected return [E(R_i)] on stock of Kayleigh Cosmetics Company, the variance of this return (² ), and its standard deviation (). Do not round intermediate calculations. Round your answers for the expected return and standard deviation to two decimal places and for the variance of this return to four decimal places.

E(R_KCC ): %

² :

: %

1. Compute the expected return [E(R _i)] on stock of Gray Cloud Company, the variance of this return (² ), and its standard deviation (). Do not round intermediate calculations. Round your answers for the expected return and standard deviation to two decimal places and for the variance of this return to four decimal places.

E(R_GCC ): %

² :

: %

On the basis of expected return [E(R_i)] alone, discuss whether Gray Cloud or Kayleigh Cosmetics is preferable.

Based on [E(R_i)] alone, -Select-Kayleigh Cosmetics CompanyGray Cloud CompanyItem 7 's stock is preferable.

1. On the basis of standard deviation () alone, discuss whether Gray Cloud or Kayleigh Cosmetics is preferable.

Based on standard deviation alone, -Select-Kayleigh Cosmetics CompanyGray Cloud CompanyItem 8 's stock is preferable.

1. Compute the coefficients of variation (CVs) for Gray Cloud and Kayleigh Cosmetics and discuss which stock return series has the greater relative dispersion. Round your answers to two decimal places.

CV_KCC :

CV_GCC :

Based on CV, -Select-Kayleigh Cosmetics CompanyGray Cloud CompanyItem 11 has the greater relative dispersion.