Question

25. Expected rate of our and ) Summerville Inc. is considering an investment in one of two common stocks. Given the information in the popup window, which investment is better based on the risk as measured by the standard devation) and return of each? a. The expected rate of return for Stock Ais %. (Round to two decimal places) The expected rate of return for Stock Bis %. (Round to two decimal places) b. The standard deviation for Stock Ais 5. Round to two decimal places) The standard deviation for Stock Bis S. Round to two decimal places) . Based on the risk (as measured by the standard deviation and return of each stock, which investment is better? Select the best choice below) OA SOK A is better because it has a higher expected rate of return with less risk OB Stock is better because it has a lower expected to return with more risk 1: Data Table COMMON STOCK A PROBABILITY RETURN 0.30 12% COMMON STOCK B PROBABILITY RETURN 0.40 0.30 16% 18% - 5% 0.15 0.35 0.35 0.15 Oick on the con located on the top right comer of the datatable above in order to copy its contents into a spreadshot) 6% 15% 20% Common Bock valution to the pays end of $200 and is currently selling for $31.85 investon roure un percent on the westment tombang Bes stockwhat growth rate would Bates inc. have to provide nesto? The growth ra t es in would has to proase the inestons is %. (Round to two decimal places.)

Answer 1

common stock "A" Eupected getwin of stock "A" is om? Z (De horny promobility) = 0.30X124, +0.40% 164. *+0.307184. 3.6+ 6.4+ 5.4 - 15.417.) v horno Hoy this thesis standend deviation of slock A S =) JE [R-2 ] x problobily rachuw () enero del (29 (22) feve 121. I. 15.4". 3.4. 11.564 1126 164. 78.4% 10.64. 0.36). 15.47. 2.6/ 676. SD =) $ (11.567; x0.30] + [0.36X0.40] +(676).X0.30] J 3.468.. + 0.144%. + 2.028-7. dece ? =) = 51644. [2.37% 2.371

common slock B Expected return of stock "B" is - 0.15 X-57; 7.0 35x6%. +0.35 X 15%. . 0.15 x 204. =) 9.6.7.) standard deviation of shock is Retum WR] Expected to reton [R] [R-RJ (R-2 je... -54 64 154. 20 7. 9.67....-14.64. 9:64 -3:6). 9.6% .5.44. 9.64. 10.4 213.16 1996. 29.16 108.16... . SD =) .. 213.16x0.18 + 1296X0.35 iso it.29.1680.35 + 108:16X0.15] V 62.14 ! . '. Ï Î 7.93.4.)

@ Expected sale of setunn for stock A = 15.4.1. słoile B = 9,64 standard deviation of stock A = 2.37% stock B - 7-934. o sesed on sisk & retuin option ☆ is better he stock "A" is better because hey a higher expected rate of with len risk. it return z (26) a [po] current price of stock = $31.85 [Re ] required Sretenn = 9.4. compay pays a dividend of $2. assumed this is a Eupected dividand ie DPS, Po = ops strange (where ge growth rate] 31.85 = 0.09-9 - [9 = 2.727.) RR-9