Chapter 8Analysis of Risk and ReturnCHAPTER 8ANALYSIS OF RISK AND RETURNSOLUTIONS TO PROBLEMS:1.a. E(RX) = .1(-10%) + .2(10%) + .4(15%) + .2(20%) + .1(40%)=15%E(RY) = .2(2%) + .2(7%) + .3(12%) + .2(15%) + .1(16%)=10%b.X= [(-10-15)2.1 + (10-15)2.2 + (15-15)2.4 + (20-15)2.2 +(40-15)2.1].5=11.62%Y= [(2-10)2.2 + (7-10)2.2 + (12-10)2.3 + (15-10)2.2 +(16-10)2.1].5=4.94%c. Stock X is riskier because it has a higher standard deviation ofreturns than Y.The coefficient of variation of returns is also higher for X(0.77) than for Y (0.49).2.z = (33% - 22%)/11% = +1.0From Table V, the probability of returns in excess of one standarddeviation above the mean is15.87%.z = (0% - 22%)/11% = -2.0From Table V, the probability of returns less than two standarddeviations below the mean is2.28%.3.a.The coefficient of variation of returns for Cornhusker's stock is 0.75(15%/20%).The coefficient of variation of returns for Mustang's stockis 0.90 (9%/10%).Therefore, according to the coefficient of variation8-1Internal