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?

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