Syntex is considering an investment in one of two stocks. given the
Stock A has a mean return of 10% and standard deviation of 15%.
Stock B has a mean return of 8% and standard deviation of 6%.
The best investment is Stock B. The expected return on stock B (8%) is lower than the expected return on stock A (10%), but the risk associated with it (standard deviation = 6%) is much lower than that associated with stock A (standard deviation = 15%). Therefore, for any given level of return, investors are willing to accept less risk by investing in Stock B. In other words, for any given level of expected return, investors can achieve greater certainty if they invest in Stock B because it carries less risk compared to Stock A.
Common Stock A Common Stock B
Probability Return Probability Return
0.20 10% 0.10 -7%
0.60 16% 0.40 5%
0.20 21% 0.40 13%
0.10 20%
Given the information in the table, what percent is the rate of return for Stock A?
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