EXPECTED RETURNS Stocks X and Y have the following probability distributions ofexpected future returns:Probability X Y0.1 (10%) (35%)0.2 2 00.4 12 200.2 20 2S0.1 38 45a. Calculate the expected rate of return, rˆY, for Stock Y ( rˆX= 12%).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 thatmost investors will regard Stock Y as being less risky than Stock X? Explain.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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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, rˆY
, for Stock Y ( rˆX
= 12%).
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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