. Your research has determined the following information about the common stock

Question

.    Your research has determined the following information about the common stock of two particular firms.

                                                              Stock A         Stock B

            Expected Return:                         10%               15%

            Standard Deviation                        5%                9%

            Part 1:

1.         Explain what is meant by the stock

Explanation / Answer

1.Expected Return is the midpoint return of a normal distribution (bell curve)of returns. 2> Coefficient of variation A=SD/Mean=5/10 0.5 Coefficient of variation B=SD/Mean=9/15 0.6 It is useful ,when returns of two stocks are to be compared but they have diffent expected return. 4>Sock-B is risker. 5>Stock-B has a higher co-efficient of variation. 6>This is a stock specific unsystematic risk. 7>Risk can be reduced by having a portfolio of stocks with -ve corelations. 8>When the SD is very high and the investor is risk averse in nature.

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