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.)

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

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

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