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The table below shows the performance of two shares A and B under four different economic conditions and their associated probabilities of occurrence: Economic Condition

The table below shows the performance of two shares A and B under four different economic conditions and their associated probabilities of occurrence:

Economic Condition

Rate of return %

Rate of return %

Probabilities

Probabilities

A

B

A

B

Growth

18.50

16.50

0.25

0.45

Expansion

12.75

14.00

0.25

0.20

Stagnation

1.25

1.80

0.25

0.20

Recession

-6.00

-4.50

0.25

0.15

Calculate:

  1. The expected rate of return for shares A and B. (6mks)
  2. The standard deviation of the returns for shares A and B. (8mks)
  3. The coefficient of variation of returns for shares A and B. (4mks)
  4. Advise an investor on the preferred share. (2mks)

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