Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence.     Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60   Which of the two stocks is riskier? Why? Which of the stocks is expected to yield a higher return? Why? Where will you invest?

EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 17PROB
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Problem 3:

Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence.

 

 

Stock A

Stock B

20X1

10

20

20X2

-15

-20

20X3

20

-10

20X4

25

30

20X5

-30

-20

20X6

20

60

 

  1. Which of the two stocks is riskier? Why?
  2. Which of the stocks is expected to yield a higher return? Why?
  3. Where will you invest?
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