Question

The following probability distributions of return for Stock X have been estimated: Probability Stock X 0.3 6% 0.4 9% 0.3 12% I. Calculate the expected rate of return ( ), standard deviation ( ), and the coefficient of variation (CV) for Stock X.

The following probability distributions of return for Stock Y have been estimated: Probability Stock Y 0.3 3% 0.4 4% 0.3 5%

II. Calculate the expected rate of return ( ), standard deviation ( ), and the coefficient of variation (CV) for Stock Y.

III. Based on the calculation of Question I and Question II, which stock is more risky?

Answer 1

(i)

(ii)

Stock X is more risky as its coefficient of variation is high.