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    Expected rate of return

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    Kelly B. Stites, Inc., is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return?

    Security A Security B

    Probability Return Probability Return

    .20 -2% .10 5%
    .50 19% .30 7%
    .30 25% .40 12%
    .20 14%

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    Solution Summary

    Expected rate of return is shown.