Question

1-You are evaluating two stocks, United Technologies, Inc. (UT) and Bigalow Giant Corporation (BG). You have done research on both of these companies, and have come up with the following data:

UT BG

Scenario Probability Return Return

Strong 25% 20% 16%

Normal 50% 10% 10%

Weak 25% -5% 5%

Based on this information, what is the Expected Return for UT (Round your answer to two decimal points?

2-You are evaluating two stocks, United Technologies, Inc. (UT) and Bigalow Giant Corporation (BG). You have done research on both of these companies, and have come up with the following data:

UT BG

Scenario Probability Return Return

Strong 25% 20% 16%

Normal 50% 10% 10%

Weak 25% -5% 5%

Based on this information, what is the Expected Return for BG (Round your answer to two decimal points?

3-Assume that the Standard Deviation for UT's stock is 3.00% and the Standard Deviation for BG's stock is 4.10%. Based upon your answers in Questions 1 and 2, what is the Coefficient of Variation for UT's stock (Round your answer to two decimal points)?

4-Assume that the Standard Deviation for UT's stock is 3.00% and the Standard Deviation for BG's stock is 4.10%. Given your answers in questions 1 and 2, what is the Coefficient of Variation for BG's stock (Round your answer to two decimal points)?

5-Given your answers to Questions 3 and 4, if you were only going to invest in one stock, which stock would you invest in, UT or BG?

Answer 1

1. Expected Return for UT= (R1*P1)+ (R2*P2)+(R3*P3)

--> (25%*20%)+(50%*10%)+(25%*(-5)%)=5+5+(-1.25%)=8.75%

2.

Expected Return for BG= (R1*P1)+ (R2*P2)+(R3*P3)

--> (25%*16%)+(50%*10%)+(25%*5%)=5+4+1.25%=10.25%

3. CoV=Standard Deviation/ expected return

CoV of UT=SD/ER ---> SD given in question, ER calculated in question 1

CoV=3/8.75=0.342

4.

CoV=Standard Deviation/ expected return

CoV of BG=SD/ER ---> SD given in question, ER calculated in question 2

CoV=4.10/10.25=0.4