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You are considering purchasing two stocks with the following possible returns and probabilities of occurrence: Investment A Return Probability of Occurrence 10% 20% 5 40

You are considering purchasing two stocks with the following possible returns and probabilities of occurrence:

Investment A

Return Probability of Occurrence

10% 20%

5 40

15 30

25 10

Investment B

Return Probability of Occurrence

5% 20%

5 40

7 30

39 10

Compare the expected returns and risk (as measured by the standard deviations) of each investment. Which investment offers the higher expected return? Which investment is riskier? Compare their relative risks by computing the CV.

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