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EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.
EXPECTED RETURNS
Stocks A and B have the following probability distributions of expected future returns:
Probability A B
0.1 (14%) (29%)
0.2 2 0
0.3 15 21
0.3 21 28
0.1 29 50
- Calculate the expected rate of return, rB, for Stock B (rA = 12.70%.) Do not round intermediate calculations. Round your answer to two decimal places.
- Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.48%.) 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?
