Answer (A) is correct . The risk of a stock can be measured using the standard deviation of its projected returns. This standard deviation is the square root of the sum of all the probability-weighted squared variances of the projected returns. Thus, the standard deviations of the three stocks presented are, respectively, 2.45, 2.24, and 2.00. The highest of these, indicating the riskiest stock, is 2.45, Stock A.
Answer (B) is incorrect because Stock B’s standard deviation is lower than that of Stock A.
Answer (C) is incorrect because Stock C’s standard deviation is lower than that of Stock A.
Answer (D) is incorrect because Stock A has the highest standard deviation.
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Using only the standard deviation of projected returns, which stock is riskiest?
