Homework: Chapter 7 Homework Score: 0 of 4 pts 5 of 8 (4 complete) HW Score: 46.

Question

Homework: Chapter 7 Homework Score: 0 of 4 pts 5 of 8 (4 complete) HW Score: 46.15%, 1 P7-7 (similar to) Question Help (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 Common Stock B Probability 0.20 0.60 0.20 Return 10% 14% 18% Probability 0.25 0.25 0.25 Return -6% 8% 13% a. Given the information in the table, the expected rate of return for stock A is .%. Round to two decimal places.)

Explanation / Answer

Stock A:

expected return=0.20*10%+0.60*14%+0.20*18%=14%

standard deviation=sqrt(0.20*(10%-14%)^2+0.60*(14%-14%)^2+0.20*(18%-14%)^2)=2.53%

Stock B:

The data given is not complete because the probabilities sum to only 0.75 and not 1

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