# Your rate of return expectations for the stock of Kayleigh Cosmetics Company during the next year are:

## Question:

Your rate of return expectations for the stock of Kayleigh Cosmetics Company during the next year are:

KAYLEIGH COSMETICS CO.

Possible Rate of Return                     Probability

−0.60 …………………………….                            0.15

−0.30 …………………………….                            0.10

−0.10 …………………………….                            0.05

0.20 …………………………….                             0.40

0.40 …………………………….                             0.20

0.80 …………………………….                             0.10

a. Compute the expected return [E(Ri)] on this stock, the variance (σ2) of this return, and its standard deviation (σ).

b. On the basis of expected return [E(Ri)] alone, discuss whether Gray Cloud or Kayleigh Cosmetics is preferable.

c. On the basis of standard deviation (σ) alone, discuss whether Gray Cloud or Kayleigh Cosmetics is preferable.

d. Compute the coefficients of variation (CVs) for Gray Cloud and Kayleigh Cosmetics and discuss which stock return series has the greater relative dispersion.

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...
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