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Suppose you are considering purchasing stock from two firms, firm A and firm B. The expected return is the same for both stocks; however, the return on stock A is more variable than the return on stock B. Which stock would you buy? Why? What do you think other investors will do? What will be the effect of investors' behavior on the relative prices of these two stocks?
Expected Value
The long-run average value of repetitions of the same experiment or random trial.
Triangular Distribution
A probability distribution with a shape formed by a triangle, which is specified by a minimum, a maximum, and a mode value.
Expected Value
The weighted average of all possible values of a random variable, taking into account their probabilities.
Bounded Distribution
A statistical distribution with both a minimum and maximum value, limiting the range of possible outcomes.
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