Which investment is better, based on the risk (the standard deviation) and return?

Syntex will invest in two stocks. The following is the

Stock A’s mean return is 10%, with a standard deviation of 15%.

Stock B’s average return is 8%, with a standard deviation of 66%.

Stock B is the most profitable investment. Stock B is a better investment than stock A. However, the expected return of stock B (8%) is less than stock A (8%). The risk involved with this stock (standard deviation = 6%) is also lower than stock A’s standard deviation ( 15%). Stock B offers investors a lower risk for any return level. With Stock B, there is less risk than Stock A, so investors have greater confidence for the expected returns.

 

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%

Based on the data in the table, how much is Stock A’s rate of return?

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