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 XXXXXXXXXX 0.2 20 2S XXXXXXXXXX a. Calculate the...

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.