In: Finance
Stocks A and B have the following probability distributions of expected future returns:
Probability | A | B |
0.1 | (14%) | (23%) |
0.2 | 2 | 0 |
0.4 | 14 | 18 |
0.2 | 22 | 30 |
0.1 | 31 | 49 |
Calculate the expected rate of return, rB, for Stock
B (rA = 12.10%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.79%.) 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.
Is it possible that most investors might regard Stock B as being less risky than Stock A?