You are considering two stocks and have determined the following information: Wh
ID: 2812203 • Letter: Y
Question
You are considering two stocks and have determined the following information:
Which of the two stocks has the higher expected return? Round your answers to two decimal places.
The return on Stock A: %
The return on Stock B: %
-Select-Stock AStock BItem 3 has the higher expected return.
Which stock is riskier? Do not round intermediate calculations. Round your answers to two decimal places.
Standard deviation of Stock A:
Standard deviation of Stock B:
Given your answers to the two previous questions, what stock is preferred?
Stock A Return Probability of the Return 17 % 10 % 11 10 10 80Explanation / Answer
Stock B is more riskier since it has higher standard deviation
Stock A is preferred
Stock A Return Probability % (Return*Probability) 17% 10 1.7 11% 10 1.1 10% 80 8 10.8 Stock A Return 10.80% Stock B Return Probability % (Return*Probability) 24% 10 2.4 18% 20 3.6 6% 70 4.2 10.2 Stock B Return 10.20% Standard Deviation - Stock A Return Probability % (Return*Probability) Deviation from expected value Squarred 17% 10 1.7 6.2% 38.44 3.844 38.44 11% 10 1.1 0.20% 0.04 0.004 3.24 10% 80 8 -0.80% 0.64 0.512 10.8 4.36 (0.10)(38.44) + (0.10)(0.04) + (0.80)(0.64) 4.36 Standard Deviation = (4.36)^0.50 2.09% Standard Deviation - Stock B Return Probability % (Return*Probability) Deviation from expected value Squarred 24% 10 2.4 13.80% 190.44 19.044 38.44 18% 20 3.6 7.80% 60.84 12.168 3.24 6% 70 4.2 -4.20% 17.64 12.348 10.2 43.56 (0.10)(190.44) + (0.20)(60.84) + (0.70)(17.64) 43.56 Standard Deviation = (43.56)^0.50 6.60% The Return on Stock A 10.80% The Return on Stock B 10.20% Stock A has higher expected return Standard Deviation of Stock A 2.09% Standard Deviation of Stock B 6.60%Stock B is more riskier since it has higher standard deviation
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