# Expected Return, Standard Deviation, and Beta

1. Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier? Explain.

2. a. Suppose you own $1 million worth of 30-year Treasury bonds. Is this asset risk-less? b. Can you think of an asset that is truly risk-less?

© BrainMass Inc. brainmass.com October 2, 2020, 4:00 am ad1c9bdddfhttps://brainmass.com/business/beta-and-required-return-of-a-project/expected-return-standard-deviation-beta-518476

#### Solution Preview

EXPECTED RETURN, STANDARD DEVIATION, AND BETA

(Guideline in answering the questions)

1. Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier?

Expected returns from an invested are basically the possible outcomes or benefits that an investment would generate. Comparing Common stock A with an expected return of 10% and Common Stock B with an expected return of 12%, common stock B is expected to earn more.

Keown et al. (2002) noted that standard deviation is a measure of the spread or dispersion about the mean of a probability distribution. To these authors standard deviation operationally measures risk or the prospect of an unfavourable outcome. ...

#### Solution Summary

An analysis of stocks is given. This analysis allows for a determination of the riskier stocks to be given. The solution contains two references.