Stocks A and B have the following probability distributions of expected future returns: Probability A 0.2 (5%) (40%) 0.2 4 0 0.2 11 24 19 25 0.3 32 45 a. Calculate the expected rate of return, Po, for Stock B (A - 13.50%.) Do not round intermediate calculations. Round your answer to two decimal places. 0.1 96 b. Calculate the standard deviation of expected returns, O., for Stock As - 30.68%.) Do not round Intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock 8. 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 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. 11. 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 III. 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 IV. 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 V. 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. C. Assume the risk-free rate is 30%. What are the Sharpe ratios for Stocks A and B? Do not round Intermediate calculations. Round your answers to two decimal places Select C. Assume the risk-free rate is 3.0%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to two decimal places Stock A: Stock B: Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part 2 1. 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. 11. 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 bata as Stock A, and hence be just as risky in a portfolio sense. III. In a stand-alone risk sense A is less risky than B. of 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. IV. 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. V. In a stand-alone risk sense A is more risky than e. If Stock B is less highly correlated with the market than A, then it might have a tower beta than Stock A, and hence be less risky in a portfolio sense. -Select
