Stocks A and B have the following probability distributions of expected future returns Probability A B 0 1 (12 ) (33 ) 0 3 3 0 0 3 16 21 0 2 20 25 0 1 35 38 Calculate the expected rate of return, r B , for Stock B (r A 12 00 ) Do not round intermediate calculations Round your answer to two decimal places Calculate the standard deviation of expected returns, A , for Stock A ( B 19 27 ) Do not round intermediate calculations Round your answer to two decimal places Now calculate the coefficient of variation for Stock B Round your answer to two decimal places 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

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Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (12%) (33%) 0.3 3 0 0.3 16 21

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

Probability	A	B
0.1	(12%)	(33%)
0.3	3	0
0.3	16	21
0.2	20	25
0.1	35	38

Calculate the expected rate of return, r_B, for Stock B (r_A = 12.00%.) Do not round intermediate calculations. Round your answer to two decimal places. %

Calculate the standard deviation of expected returns, _A, for Stock A (_B = 19.27%.) Do not round intermediate calculations. Round your answer to two decimal places. %

Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places.

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.