Question: Your colleague is considering purchasing either Stock A or Stock B (but not both), and has compiled the following data based on the expected returns

Your colleague is considering purchasing either Stock A or Stock B

Your colleague is considering purchasing either Stock A or Stock B (but not both), and has compiled the following data based on the expected returns in three different economic states. State of the Economy Probability of Rate of Return if State of State Occurs Economy Stock A Stock B 0.20 .05 -17 0.55 0.25 Recession Normal Boo .08 12 a. Calculate the average expected return for each Stock. (2 marks) b. If the variance for Stock A is 0.00076275 and for Stock B is: 0.02380475 Calculate the standard deviation for Stock A and Stock B. (2 marks) c. If you were advising your colleague, who was risk-averse, which stock would you recommend buying? Clearly explain your answer. (1 mark)

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