Consider the following probability distribution for stocks A and B: The expected rates of return of stocks A and B are _____ and _____, respectively.

Question

Consider the following probability distribution for stocks A and B:  The expected rates of return of stocks A and B are _____ and _____, respectively.

Quizplus · Accepted Answer

The expected rate of return of stock A can be calculated as:
(0.2 x 0.07) + (0.3 x 0.10) + (0.5 x 0.15) = 0.013 + 0.03 + 0.075 = 0.118 or 11.8%
And the expected rate of return of stock B can be calculated as:
(0.2 x 0.13) + (0.3 x 0.09) + (0.5 x 0.05) = 0.026 + 0.027 + 0.025 = 0.078 or 7.8%
Therefore, the closest answer choice is C, which states the expected rates of return for stocks A and B as 13.2% and 7.7%, respectively.

Consider the Following Probability Distribution for Stocks a and B