1. Given the following probability distribution, what is the expected return and the standard deviation of returns for Security J?

State P_i r_J

_____ ____ ____

1 0.2 10%

2 0.6 15

3 0.2 20

Part a) what is the expected return? in decimal format, at least 4 decimals.

Part b) standard deviation of returns for Security J

3

You have been scouring The Wall Street Journal looking for stocks that are "good values" and have calculated the expected returns for five stocks. Assume the risk-free rate (rRF) is 7 percent and the market risk premium ( - ) is 2 percent. Which security would be the best investment? (Assume you must choose just one.) Expected Return Beta a. 9.01% 1.70 b. 7.06% 0.00 c. 5.04% -0.67 d. 8.74% 0.87 e. 11.50% 2.50

8

	The arithmetic average of -11%, 15%, and 20% is ________. The geometric average of -12%, 20%, and 25% is _________.