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6. Problem 8.06 (Expected Returns) A B ebook Problem Walk-Through Stocks A and B have the following probability distributions of expected future returns: Probability 0.1 (1456) (2996) 0.2 O 0.5 19 24 25 46 . Calculate the expected rate of return, in, for Stock BTA - 12.90%.) Do not round intermediate calculations. Round your answer to two decimal places 4 15 s 0.1 0.1 36 uctory b. Calculate the standard deviation of expected returns, or for Stock A (o 18.74%.) Do not round intermediate calculations. Round your answer to two decimal places Now calculate the coefficient of variation for stock 8. Do not round Intermediate calculations. Round your answer to two decimal places e to search Is it possible that most investors might regard Stock B as being less risky than Stock A? 1. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. II. If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in a portfolio sense. III. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. IV. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as naky In a portfolio sense V. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in portfolio sense. c. Assume the risk-free rate is 1.5%. What are the Sharpe ratios for Stocks A and B? Do not found intermediate calculations. Round your answers to four decimal places. Stock A: Stock 8: Are these calculations consistent with the information obtained from the coefficient of variation calculations in Party 1. In a stand-alone risk sense A is less risky than 3. If Stock Isless highly correlated with the market than A, then it might have a lower beta than Stock A, and hence belossky in a portfolio sense 11. In a stand-alone risk sense A is less risky than B. Ir stock is less highly correlated with the market than that might higher beta than Stock A, and hence be more sky in a portfolio rende 11. In a stand-alone risk sense At more roky than I Stock less highly correlated with the market than then it might have a lower buts than Stock A, and hence be less risky in a portfolio sende 1101 X C. Assume the risk-free rate is 1.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places. Stock A: Stock B: 6 Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b? 1. In a stand-alone risk sense A is less risky than 8. If Stock B is less highly correlated with the market than A than it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. 11. In a stand-alone risk sense A is less risky than B. 17 Stock is less highly correlated with the market than A, then it might haves higher beta than Stock A, and hence be more risky in a portfolio sense III. In a stand-alone risk sense A is more risky than B. If Stock 8 is less highly correlated with the market than then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. IV. In a stand-alone risk sense A is more risky than B. If Stock B is less highly correlated with the market than A, then it might have a higher beta than stock A, and hence be more risky in a portfolio sense V. in a stand-alone risk sense A is less risky than B. If Stock is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. NE 1 Selea

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