In: Finance
The correct answer is option d
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The expected returns on stock ABC is found as follows
Expected return = 0.30
0.15 + 0.35
-0.05 + 0.25
0.30 + 0.10
0.05 = 10.75%
Variance of stock ABC = 0.30
( 0.15 - 0.1075)2 + 0.35
( -0.05 - 0.1075 )2 + 0.25
( 0.30 - 0.1075)2 + 0.10
( 0.05 - 0.1075)2
Variance of stock ABC = 0.01881875
Standard deviation =
Standard deviation for stock ABC = 13.72%
Expected return of stock XYZ = 0.30
0.30 + 0.35
0.30 + 0.25
0.15 + 0.10
0.10 = 24.25%
Variance of stock XYZ = 0.30
( 0.30 - 0.2425)2 + 0.35
( 0.30 - 0.2425)2 + 0.25
( 0.15 - 0.2425)2 + 0.10
( 0.10 - 0.2425)2
Variance of stock XYZ = 0.00631875
Standard deviation =
Standard deviation for stock XYZ = 7.95%