Consider the following two securities A and B. A B Return Prob. Return Prob. Pessimistic 11%...

 

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Consider the following two securities A and B. A B Return Prob. Return Prob. Pessimistic 11% 0.30 9% 0.30 Most Likely 18 0.45 18 0.45 Optimistic 22 0.25 25 0.25 1) (a) Compute expected rate of return for each security. (b) Compute the standard deviation and coefficient of variation for each security. (c) As a risk averse investor, which security should you invest in? 2) Assume that the risk-free rate is 5% and the market return is 15%, Calculate the required rate of return (RRR) for each of Security A and B, knowing that Beta of security A is 0.9 and the beta of security B is 1.5. Choose which security you should invest in. (Compare between the RRR and the Expected Return). Consider the following two securities A and B. A B Return Prob. Return Prob. Pessimistic 11% 0.30 9% 0.30 Most Likely 18 0.45 18 0.45 Optimistic 22 0.25 25 0.25 1) (a) Compute expected rate of return for each security. (b) Compute the standard deviation and coefficient of variation for each security. (c) As a risk averse investor, which security should you invest in? 2) Assume that the risk-free rate is 5% and the market return is 15%, Calculate the required rate of return (RRR) for each of Security A and B, knowing that Beta of security A is 0.9 and the beta of security B is 1.5. Choose which security you should invest in. (Compare between the RRR and the Expected Return).