In: Finance
Stocks A and B have the following probability distributions of expected future returns:
Probability | A | B | ||
0.1 | (11 | %) | (39 | %) |
0.2 | 2 | 0 | ||
0.5 | 16 | 21 | ||
0.1 | 20 | 30 | ||
0.1 | 39 | 47 |
%
%
Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places.
Is it possible that most investors might regard Stock B as being less risky than Stock A?
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Assume the risk-free rate is 1.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places.
Stock A:
Stock B:
Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b?