Question

In: Finance

COMMON STOCK A COMMON STOCK B PROBABILITY RETURN PROBABILITY RETURN 0.25 10​% 0.20 −5​% 0.50 15​%...

COMMON STOCK A

COMMON STOCK B

PROBABILITY

RETURN

PROBABILITY

RETURN

0.25

10​%

0.20

−5​%

0.50

15​%

0.30

    

6%

0.25

18​%

0.30

16%

0.20

22%

expected

rate of return and

risk​)

Summerville Inc. is considering an investment in one of two common stocks. Given the information in the popup​ window:

​, which investment is​ better, based on the risk​ (as measured by the standard​ deviation) and return of​ each?

a. The expected rate of return for Stock A is

​%.

​(Round to two decimal​ places)The expected rate of return for Stock B is

​%.

​(Round to two decimal​ places)b. The standard deviation for Stock A is

​%.

​(Round to two decimal​ places)The standard deviation for Stock B is

​%.

​(Round to two decimal​ places)

c. Based on the risk​ (as measured by the standard​ deviation) and return of each​ stock, which investment is​ better?  ​(Select the best choice​ below.)

A.

Stock A is better because it has a higher expected rate of return with less risk.

B.

Stock B is better because it has a lower expected rate of return with more risk.  

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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