In: Finance
Stocks A and B have the following probability distributions of expected future returns:
Probability | A | B |
0.4 | (10%) | (23%) |
0.2 | 3 | 0 |
0.1 | 14 | 22 |
0.1 | 23 | 25 |
0.2 | 32 | 46 |
Calculate the expected rate of return, , for Stock B
( = 6.70%.) Do not round intermediate calculations. Round your
answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 26.90%.) 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.
Assume the risk-free rate is 2.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to two decimal places.
Stock A:
Stock B: