EXPECTED RETURNS

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

Probability                               A                              B

0.1                                   (14%)                        (29%)

      0.2                                      2                               0

      0.3                                     15                             21

      0.3                                     21                             28

      0.1                                     29                             50

• Calculate the expected rate of return, rB, for Stock B (rA = 12.70%.) Do not round intermediate calculations. Round your answer to two decimal places.

• Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.48%.) Do not round intermediate calculations. Round your answer to two decimal places.

• Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places.

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