Stocks X and Y have the following probability distributions of expected future returns:

 

a. Calculate the expected rate of return, for Stock Y.

b. Calculate the standard deviation of expected returns for Stock X. (That for Stock Y is 20.35 percent.) Now calculate the coefficient of variation for Stock Y. Is it possible that most investors might regard Stock Y as being less risky than Stock X? Explain.

Transcribed Image Text:

PROBABILITY Y 0.1 (10%) (35%) 0.2 2 0.4 12 20 0.2 20 25 0.1 38 45 PROBABILITY Y 0.1 (10%) (35%) 0.2 2 0.4 12 20 0.2 20 25 0.1 38 45

Answer rating: 100% (QA)

a Expected Rate of Return Y Probability Future expected returns of stock Y Expected R... View the full answer