Question 1. Suppose Allegheny stock has an equally likely probability of a +45% return or a -25% return. What are the expected return and volatility (standard deviation) of its returns?

Question 2. Over the last four weeks, the stock price for Royal Caribbean has closed at $40.00, $44.00, $40.00, and $36.00, respectively.

Based on these prices, what is the expected return and standard deviation of this stock? (Assume that Royal Caribbean has not paid any dividends during this period.)

Do you think this sample expected return is representative of the population expected return?

Question 3. Your broker Vinny calls up and asks you to consider three stocks that he thinks are just dynamite.

Stock A has an expected return of 10% and a standard deviation of 5%

Stock B has an expected return of 8% and a standard deviation of 6%

Stock C has an expected return of 6% and a standard deviation of 3%

Which (if any) of the three stocks above is dominated by another? Explain your answer. Also, give an example of a stock that dominates stocks A, B, and C.