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Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (6 %) (35 %) 0.1 3 0 0.5

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

Probability A B
0.1 (6 %) (35 %)
0.1 3 0
0.5 14 19
0.2 23 30
0.1 30 40
  1. Calculate the expected rate of return, , for Stock B ( = 14.30%.) 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 = 19.67%.) Do not round intermediate calculations. Round your answer to two decimal places.

    %

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

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

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.

    -Select-IIIIIIIVV

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