Question

In: Finance

EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...

EXPECTED RETURNS

Stocks A and B have the following probability distributions of expected future returns:

Probability A B
0.1 (7%) (26%)
0.2 5 0
0.3 10 24
0.3 22 28
0.1 33 40
  1. Calculate the expected rate of return, rB, for Stock B (rA = 13.20%.) Do not round intermediate calculations. Round your answer to two decimal places.
    %

  2. Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.62%.) Do not round intermediate calculations. Round your answer to two decimal places.
    %

  3. Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places.

  4. Is it possible that most investors might regard Stock B as being less risky than Stock A?

    1. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.
    2. If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in a portfolio sense.
    3. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.
    4. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense.
    5. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

Solutions

Expert Solution

*Please rate Thumbs up


Related Solutions

EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (8%) (21%) 0.2 6 0 0.4 10 24 0.2 24 30 0.1 36 49 Calculate the expected rate of return, rB, for Stock B (rA = 12.80%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.87%.) Do not round intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.2 (14%) (35%) 0.2 4 0 0.3 12 20 0.2 18 29 0.1 30 42 Calculate the expected rate of return, rB, for Stock B (rA = 8.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 25.07%.) Do not round intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.2 (11%) (27%) 0.2 3 0 0.3 11 21 0.2 22 27 0.1 40 41 A.Calculate the expected rate of return, rB, for Stock B (rA = 10.10%.) Do not round intermediate calculations. Round your answer to two decimal places. % B.Calculate the standard deviation of expected returns, σA, for Stock A (σB = 22.00%.) Do not round intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (14%) (29%) 0.2 3 0 0.4 13 23 0.2 24 27 0.1 35 37 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 = 18.47%.) Do not round intermediate calculations. Round your...
Expected returns Stocks A and B have the following probability distributions of expected future returns: Probability...
Expected returns Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.2 -10% -39% 0.2 6 0 0.3 11 21 0.2 20 27 0.1 36 44 Calculate the expected rate of return, rB, for Stock B (rA = 10.10%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 26.59%.) Do not round intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (10%) (35%) 0.2 3 0 0.3 11 19 0.3 19 27 0.1 32 47 Calculate the expected rate of return, rB, for Stock B (rA = 11.80%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 21.10%.) Do not round intermediate calculations. Round your...
Stocks A and B have the following probability distributions of expected future returns:
Stocks A and B have the following probability distributions of expected future returns: Probability     A     B 0.1 (13 %) (34 %) 0.1 5 0 0.6 16 20 0.1 20 26 0.1 40 36 Calculate the expected rate of return,  , for Stock B ( = 14.80%.) Do not round intermediate calculations. Round your answer to two decimal places.   % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.27%.) Do not round intermediate calculations. Round your...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.2 (7%) (37%) 0.2 4 0 0.2 13 19 0.3 18 27 0.1 38 48 Calculate the expected rate of return, , for Stock B ( = 11.20%.) Do not round intermediate calculations. Round your answer to two decimal places.   % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 26.62%.) Do not round intermediate calculations. Round your answer to...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.3 (15%) (30%) 0.2 3 0 0.2 11 20 0.1 24 26 0.2 33 40 Calculate the expected rate of return, , for Stock B ( = 7.30%.) Do not round intermediate calculations. Round your answer to two decimal places.   % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 26.58%.) Do not round intermediate calculations. Round your answer to...
Stocks A and B have the following probability distributions of expected future returns: Probability     A     B...
Stocks A and B have the following probability distributions of expected future returns: Probability     A     B 0.1 (9 %) (30 %) 0.2 6 0 0.5 12 22 0.1 21 26 0.1 32 47 Calculate the expected rate of return,  , for Stock B ( = 11.60%.) Do not round intermediate calculations. Round your answer to two decimal places.   % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 19.66%.) Do not round intermediate calculations. Round your answer...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT