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Your rate of return expectations for the ordinary shares of Gray Cloud Company during the next year are: GRAY CLOUD CO. Possible Rate of Return Probability

Your rate of return expectations for the ordinary shares of Gray Cloud Company during the next year are: GRAY CLOUD CO. Possible Rate of Return Probability -0.10 0.25 0.00 0.15 0.10 0.35 0.25 0.25 a. Compute the expected return (E(R)] on this investment, the variance of this return (?), and its standard deviation (m). b. Under what conditions can the standard deviation be used to measure the relative risk of two investments? c. Under what conditions must the coefficient of variation be used to measure the relative risk of two investments?
2. Your rate of return expectations for the stock of Kayleigh Cosmetics Company during the next year are: KAYLEIGH COSMETICS CO. Possible Rate of Return -0.60 0.30 -0.10 0.20 0.40 0.80 Probability 0.15 0.10 0.05 0.10 0.20 0.10 a. Compute the expected return [E(R)] on this stock, the variance (oº) of this return, and its standard deviation (o). b. On the basis of expected return [E(R)] alone, discuss whether Gray Cloud or Kayleigh Cosmetics is preferable. c. On the basis of standard deviation (o) alone, discuss whether Gray Cloud or Kayleigh Cosmetics is preferable. d. Compute the coefficients of variation (CVS) for Gray Cloud and Kayleigh Cosmetics and discuss which stock return series has the greater relative dispersion.

Apr 19 2021 View more View Less

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