Problem: You have estimated the following probability distributions of expected future returns for Stocks X and Y:
Stock X
Probability
0.1
0.2
0.4
0.2
0.1
Return
-10%
10%
15%
20%
40%
Stock Y
Probability
0.2
0.2
0.3
0.2
0.1
Return
2%
7%
12%
15%
16%
a. What is the expected rate of return for Stock X? Stock Y?
b. What is the standard deviation of expected returns for Stock X? For Stock Y?
c. Which stock would you consider to be riskier? Why?