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EXPECTED RETURNS Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.1 (10%) (35%) 0.2 2 0 0.4 12 20 0.2 20 2S 0.1 38 45 a. Calculate the expected rate of return, r ^ Y , for Stock Y ( r ^ X = 12%). b. Calculate the standard deviation of expected returns, σ X , for Stock X (σ Y = 20.35%). Now calculate the coefficient of variation for Stock Y. Is it possible that most investors will regard Stock Y as being less risky than Stock X? Explain.

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 8, Problem 6P
Textbook Problem

EXPECTED RETURNS Stocks X and Y have the following probability distributions of expected future returns:

Probability X Y
0.1 (10%) (35%)
0.2 2 0
0.4 12 20
0.2 20 2S
0.1 38 45
  1. a. Calculate the expected rate of return, r ^ Y , for Stock Y ( r ^ X = 12%).
  2. b. Calculate the standard deviation of expected returns, σX, for Stock X (σY = 20.35%). Now calculate the coefficient of variation for Stock Y. Is it possible that most investors will regard Stock Y as being less risky than Stock X? Explain.

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Chapter 8 Solutions

Fundamentals of Financial Management (MindTap Course List)
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Ch. 8 - PORTFOLIO BETA An individual has 35,000 invested...Ch. 8 - REQUIRED RATE OF RETURN Assume that the risk-free...Ch. 8 - EXPECTED AND REQUIRED RATES OF RETURN Assume that...Ch. 8 - BETA AND REQUIRED RATE OF RETURN A stock has a...Ch. 8 - EXPECTED RETURNS Stocks X and Y have the following...Ch. 8 - PORTFOLIO REQUIRED RETURN Suppose you are the...Ch. 8 - BETA COEFFICIENT Given the following information...Ch. 8 - REQUIRED RATE OF RETURN Stock R has a beta of 1.5,...Ch. 8 - CAPM AND REQUIRED RETURN Bradford Manufacturing...Ch. 8 - CAPM AND REQUIRED RETURN Calculate the required...Ch. 8 - REQUIRED RATE OF RETURN Suppose rRF = 9%, rM = 14%...Ch. 8 - CAPM, PORTFOLIO RISK. AND RETURN Consider the...Ch. 8 - PORTFOLIO BETA Suppose you held a diversified...Ch. 8 - CAPM AND REQUIRED RETURN HR Industries (HRI) has a...Ch. 8 - CAPM AND PORTFOLIO RETURN You have been managing a...Ch. 8 - PORTFOLIO BETA A mutual fund manager has a 20...Ch. 8 - EXPECTED RETURNS Suppose you won the lottery and...Ch. 8 - EVALUATING RISK AND RETURN Stock X has a 10%...Ch. 8 - REALIZED RATES OF RETURN Stocks A and B have the...Ch. 8 - SECURITY MARKET LINE You plan to invest in the...Ch. 8 - EVALUATING RISK AND RETURN Bartman Industriess and...Ch. 8 - RISK AND RETURN Assume that you recently graduated...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...

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