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Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10 % 8 % 2 0.20 13 % 7 % 3 0.20 12 % 6 % 4 0.30 14 % 9 % 5 0.20 15 % 8 % The expected rates of return of stocks A and B are _____ and _____, respectively. Multiple Choice 7.7%; 13.2% 14%; 10% 13.2%; 9% 13.2%; 7.7%

Respuesta :

The expected rates of return of stocks A and B are 13.2% and 7.7% respectively.

The expected rate of return refers to the profit or loss that an investor can anticipate on an investment.

The expected rate of return of stocks A will be:

= 0.1(10%) + 0.2(13%) + 0.2(12%) + 0.3(14%) + 0.2(15%)

= 13.2%

The expected rate of return for stocks B will be:

= 0.1(8%) + 0.2(7%) + 0.2(6%) + 0.3(9%) + 0.2(8%)

= 7.7%

In conclusion, the expected rates of return of stocks A and B are 13.2% and 7.7% respectively.

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