Q Search Ch 08: End-of-Chapter Problems - Risk and Rates of Return Back to Assignment Attempts Keep the Highest / 4 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: A B Probability 0.1 (9%) (35%) 0.2 4 0 21 0.3 15 0.2 28 21 37 0.2 44 a. Calculate the expected rate of return, rb, for Stock B (A - 16.00%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, on, for Stock A (0g = 22.43%.) Do not round intermediate calculations. Round your answer to two decimal places, % c. Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places. d. Is it possible that most investors might regard Stock B as being less risky than Stock A? 1. If Stock B is 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. II. If Stock B is 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 III. 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. IV. 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. V. If 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. Select- e Cd. JUL CA W P A otv 17