Question

Problem 8-07

You are considering two stocks and have determined the following information:

Stock A	Return		Probability of the Return
	21	%	20	%
	15		20
	5		60

Stock B	Return		Probability of the Return
	23	%	20	%
	14		20
	9		60

1. Which of the two stocks has the higher expected return? Round your answers to two decimal places.

   The return on Stock A:   %

   The return on Stock B:   %

   -Does Stock A or Stock B 3 have the higher expected return?

2. Which stock is riskier? Do not round intermediate calculations. Round your answers to two decimal places.

   Standard deviation of Stock A:

   Standard deviation of Stock B:

   -Is Stock A or Stock B riskier?

3. Given your answers to the two previous questions, what stock is preferred?

   -Is Stock A or Stock B preferred?

Answer 1