• The market and Stock J have the following probability distributions:

Probability RM RJ

0.3 15% 20%

0.4 9 5

0.3 18 13

• Calculate the expected rates of return for the market and Stock J.
• Calculate the standard deviations for the market and Stock J.

• Two investors are evaluating General Electric's stock for possible purchase. They agree on the expected value ofD1D1and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds stocks for 2 years and the other normally holds stocks for 10 years. On the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for General Electric's stock. True or false? Explain.