You have been provided with the following information about the expected returns to Stock A and Stock B for various possible future economic conditions. State of Economy Boom Level Slump Probability of State of Economy 0.25 0.60 0.15 Return for Stock A 0.25 0.47 0.10 Return for Stock B 0.52 0.12 -0.10

You have been provided with the following information about the expected returns to Stock A and Stock B for various possible future economic conditions. State of Economy Boom Level Slump Probability of State of Economy 0.25 0.60 0.15 Return for Stock A 0.25 0.47 0.10 Return for Stock B 0.52 0.12 -0.10

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1P

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(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) ew an example Get more help. T 3 a. Given the information in the table, the expected rate of retum for stock A is 15.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.) E D 80 73 Return. 12% 16% 18% U с $ 4 R F 288 F4 V Common Stock B % 5 T FS G 6 Return -7% 7% 13% 21% B MacBook Air 2 F& Y H & 7 N 44 F? U J ** 8 M | MOSISO ( 9 K DD O . Clear all : ; y 4 FIX { option [ + = ? 1 Check answer . FV2 } ◄ 1 delete 1 return shift