Stocks A and B have the following probability distributions of expected future returns:

Probability |
A |
B |
||

0.1 | (7 | %) | (22 | %) |

0.2 | 5 | 0 | ||

0.5 | 14 | 19 | ||

0.1 | 22 | 27 | ||

0.1 | 30 | 36 |

- Calculate the expected rate of return, for Stock B ( = 12.50%.) Do not round intermediate calculations. Round your answer to two decimal places. %
- Calculate the standard deviation of expected returns, σ
_{A}, for Stock A (σ_{B}= 15.70%.) Do not round intermediate calculations. Round your answer to two decimal places. %Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places.

_____________

Is it possible that most investors might regard Stock B as being less risky than Stock A?

- 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.
- 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.
- 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.
- 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.
- 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-IIIIIIIVVItem 4

- Assume the risk-free rate is 1.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places.
Stock A:

Stock B:

Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b?

- In a stand-alone risk sense A is more risky than B. 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.
- In a stand-alone risk sense A is less risky than B. 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.
- In a stand-alone risk sense A is less risky than B. 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.
- In a stand-alone risk sense A is less risky than B. 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.
- In a stand-alone risk sense A is more risky than B. 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. Get Finance homework help today