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The expected returns earned from investment in the stock of two companies, Company A and Company B, are shown in the following table. Use the table to complete parts (a) through (c) below.

Demand for Product Probability of Demand Expected Return: Stock A Expected Return: Stock B

Strong 0.3 40% 20%

Normal 0.45 20% 5%

Weak 0.25 0% (5%)

(a) Compute the expected rates of return for each stock.

(b) Compute the standard deviations for each stock.

(c) Compute the coefficient of variation for each stock. Based on the coefficient of variation, which stock has the higher risk for investment?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M940014

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