Question

You have estimated the following probability distributions of expected future returns for Stocks X and Y:

Stock X				Stock Y
Probability		Return		Probability		Return
0.1		-12	%	0.2		4	%
0.2		11		0.2		7
0.2		18		0.3		10
0.2		25		0.1		18
0.3		45		0.2		19

1. What is the expected rate of return for Stock X? Stock Y? Round your answers to one decimal place.
   Stock X:   %

   Stock Y:   %

2. What is the standard deviation of expected returns for Stock X? For Stock Y? Round your answers to two decimal places.
   Stock X:   %

   Stock Y:   %

3. Which stock would you consider to be riskier?   Stock X Or Stock Y?  is riskier because it has a -higher or lower? standard deviation of returns.

Answer 1

Stock X

Stock X	Return
Probability	(r)	P * r	p * r^2
0.1	-12%	-1.2%	0.0014400
0.2	11%	2.2%	0.0024200
0.2	18%	3.6%	0.0064800
0.2	25%	5.0%	0.0125000
0.3	45%	13.5%	0.0607500
Total		23.1%	0.0835900
Expected return (u)		23.1%
Variance	0.08359-0.231^2	3.02%
Standard deviation	0.03023^(1/2)	17.39%

Expected return is 23.1%

Standard deviation is 17.39%

Stock Y:

Stock Y	Return
Probability	(r)	P * r	p * r^2
0.2	4%	0.8%	0.0003200
0.2	7%	1.4%	0.0009800
0.3	10%	3.0%	0.0030000
0.1	18%	1.8%	0.0032400
0.2	19%	3.8%	0.0072200
Total		10.8%	0.0147600
Expected return (u)		10.8%
Variance	0.01476-0.108^2	0.31%
Standard deviation	0.0031^(1/2)	5.56%

Expected return is 10.8%

Standard deviation is 5.56%

Stock Y is less riskier because it has lower standard deviation.

please rate.