Question

The possible annual percentage returns of the stocks of Alpha, Inc. and Beta, Inc. are distributed as shown in the file S04_24.xlsx.
a. What is the expected annual return of Alpha’s stock?
What is the expected annual return of Beta’s stock?
b. What is the standard deviation of the annual return of Alpha’s stock? What is the standard deviation of the annual return of Beta’s stock?
c. On the basis of your answers to the questions in parts a and b, which of these two stocks would you prefer to buy? Defend your choice.
d. Are the annual returns of these two stocks positively or negatively associated with each other?
Answer by calculating the correlation between them. How might the answer to this question influence your decision to purchase shares of one or both of these companies?



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  • CreatedApril 01, 2015
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