Question

You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a​ $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts​ (a) through​ (c) below.

Probability Economic condition Stock_X Stock_Y

0.1 Recession -150 -170

0.2 Slow_growth    20 50

0.4 Moderate_growth 100 130

0.3 Fast_growth 160 210

a. Compute the expected return for stock X and for stock Y. The expected return for stock X is ? ​(Type an integer or a​ decimal.)

b. Compute the standard deviation for stock X and for stock Y.

c. Which of the following best describes the decision that should be​ made? Choose the correct answer below.

A.Based on the expected ​value, stock Y should be chosen. ​However, stock Y has a larger standard ​deviation, resulting  in a higher ​risk, which should be taken into consideration.

B.Since the expected values are approximately the​ same, either stock can be invested in.​ However, stock X has a larger standard​ deviation, which results in a higher risk. Due to the higher risk of stock X​, stock Y should be invested in.

C.Since the expected values are approximately the​ same, either stock can be invested in.​ However, stock Y has a larger standard​ deviation, which results in a higher risk. Due to the higher risk of stock Y​, stock X should be invested in.

D.Based on the expected ​value, stock X should be chosen. ​However, stock X has a larger standard ​deviation, resulting  in a higher ​risk, which should be taken into consideration.

Answer 1