Question

You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a​ $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts​ (a) through​ (c) below.

PROBABILITY ECONOMIC CONDITION STOCK X STOCK Y

0.1 RECESSION -140 -190

0.3 SLOW GROWTH 20 50

0.4 MODERATE GROWTH 80 130

0.2 FAST GROWTH 150 210

a.Compute the expected return for stock X and for stock Y. (type integer or decimal)

b. Compute the standard deviation for stock X and for stock Y. ( round two decimal places)

c. Which of the following best describes the decision that should be​ made? Choose the correct answer below.

a.Since the expected values are approximately the​ same, either stock can be invested in.​ However, stock y has a larger standard​ deviation, which results in a higher risk. Due to the higher risk of stock y , stock x should be invested in.

b. Based on the expected ​value, stock y should be chosen. However stock y has a larger standard ​deviation, resulting  in a higher ​risk, which should be taken into consideration.

c. Since the expected values are approximately the​ same, either stock can be invested in.​ However, stock x has a larger standard​ deviation, which results in a higher risk. Due to the higher risk of stock x, stock y should be invested in.

d. Based on the expected ​value, stock x should be chosen. However stock x has a larger standard ​deviation, resulting  in a higher ​risk, which should be taken into consideration.

Answer 1