Stocks A and B have the following probability distributions of expected future returns:

Probability	A		B
0.1	(10	)%	(40	)%
0.1	3		0
0.5	13		22
0.2	18		27
0.1	36		48

1. Calculate the expected rate of return, , for Stock B ( = 13.00%.) Do not round intermediate calculations. Round your answer to two decimal places.

____ %

2. Calculate the standard deviation of expected returns, _A, for Stock A (_B = 21.96%.) Do not round intermediate calculations. Round your answer to two decimal places.

____%

3. Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places.

____

4. Is it possible that most investors might regard Stock B as being less risky than Stock A?

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

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

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

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

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

6. Assume the risk-free rate is 1.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places.

Stock A: ____

Stock B: ____

7. Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b?

In a stand-alone risk sense A is less risky than B. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

In a stand-alone risk sense A is less risky than B. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.

In a stand-alone risk sense A is more risky than B. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

In a stand-alone risk sense A is more risky than B. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.

In a stand-alone risk sense A is less risky than B. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense.