QUESTION 1

The following stocks have the following probability distributions of expected future returns:

PROBAILITY	A	B
0.1	-5%	-17.5%
0.2	1%	0%
0.4	6%	10%
0.2	10%	12.5%
0.1	19%	22.5%

A. Calculate the expected rate of return for stocks A and B. (8 marks)

B. Calculate the standard deviation of both stocks (12 marks)

C. Calculate the coefficient of Variation of stocks A and B (3 marks)

D. Which stocks should a potential investor invest in? Justify your answer. (2 marks)