A. Use an example to explain the relationship among total, systematic and unsystematic risks.
B. Stocks RJR Limited and SJL Limited have the following probability distributions of expected future returns:
Probability RJR Limited SJL Limited 0.1 -10% -27.5% 0.2 2% 4% 0.4 12% 18% 0.2 20% 22.5% 0.1 39% 32.5%
Calculate, for stocks RJR and SJL, the:
i. expected rate of return.
ii. standard deviation.
iii. coefficient of variation.
C. Which stock should a potential investor opt for? Why?
