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Question 7: Smith Inc. is considering an investment in one of two common stocks. Given the...

Question 7: Smith Inc. is considering an investment in one of two common stocks. Given the following information, which investment is better, based on the risk (as measured by the standard deviation) and return of each? (Please calculate the expected rate of return of each investment and its corresponding standard deviation)

Common Stock A:

Probability                 Return

0.30                            10%

0.40                            16%

0.30                            18%

Common Stock B:

Probability                 Return

0.20                            - 4%

0.30                              6%

0.30                            13%

0.20                            21%

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