for question #b how do we get 13.60 from the equation?

5. Problem 8.06 Click here to read the eBook: Stand Alone Risk EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability (9% (2796) a. Calculate the expected rate of return, ro, for Stock BCA places 9.70%.) Do not round intermediate calculations. Round your answer to two decimal b. Calculate the standard deviation of expected returns, on for Stock A (op - 23.75%.) Do not round intermediate calculations. Round your answer to two decimal places C. Now calculate the coefficient of variation for Stock 8. Round your answer to two decimal places. 1 x d. Is it possible that most investors might regard Stock B as being less risky than Stock A? 1. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. II. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. TIT. I Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in a portfolio sense. IV. If Stocks more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. V Tr Stocks more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense Hide Feedback Partially Correct Post Submission Feedback Solution _ _ _ f=>Piri fB -0.2(-27%) + 0.2(0%) + 0.3(23%) + 0.2(29%) + 0.1(49%) - 12.20% versus 9.70% for A b. and c. or 13 (-i)? JA? - (-9% - 9.70%)(0.2) + (3% - 9.70%)(0.2) + (11% - 9.70%)(0.3) + (18% - 9.70%)(0.2) + (40% - 9.70%) (0.1) = 0.018501 da = 13.60% versus 23.75% for B CVA - CA/A = 13.60%/9.70% = 1.40, while CVB - 23.75%/12.20% = 1.95 d. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. Solution Correct Response Click here to read the eBook: Stand-Alone Risk EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns