Math Problem Statement
(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return?
Common Stock A
Common Stock B
Probability
Return
Probability
Return
0.350.35
1212%
0.150.15
negative 4−4%
0.300.30
1616%
0.350.35
88%
0.350.35
2121%
0.350.35
1313%
0.150.15
2121%
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Part 1
a. Given the information in the table, the expected rate of return for stock A is
16.3516.35%.
(Round to two decimal places.)
Part 2
The standard deviation of stock A is
3.773.77%.
(Round to two decimal places.)
Part 3
b. The expected rate of return for stock B is
enter your response here%.
(Round to two decimal places.)
Solution
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Math Problem Analysis
Mathematical Concepts
Expected Rate of Return
Standard Deviation
Probability
Formulas
Expected Rate of Return (E(R)) = Σ (P_i × R_i)
Variance (σ^2) = Σ P_i × (R_i - E(R))^2
Standard Deviation (σ) = √Variance
Theorems
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Suitable Grade Level
College-level or Advanced High School
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