A. How risky is the investment that gives a return of 10% with a probability of...

A. How risky is the investment that gives a return of 10% with a probability of 0.20; has a 40% chance of producing an 8% return, and the remaining probability is attached to the return of 3%?

B. Find standard deviation for the following returns:

Stock XYZ

2011 -18.00%

2012 30.00

2013 15.00

2014 -2%

2015 27.00 %

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Economic Conditions Probability Return on Investment A Return on Investment B Poor 0.2 25% -2% Fair...

Economic Conditions Probability Return on Investment A Return on Investment B Poor 0.2 25% -2% Fair 0.5 12% 8% Good 0.3 4% 30% An investor is considering the following two investment opportunities. The returns for each, under different economic conditions are forecast as above. a. Calculate the expected returns and standard deviation of returns for A and B. b. Assume that a portfolio is equally weighted between Investment A and Investment B. What would be the expected return and standard...

A firm is considering an investment in a risky project that offers a 10 percent rate...

A firm is considering an investment in a risky project that offers a 10 percent rate of return. Alternative investments with the same level of risk offer a 15% rate of return. If the company makes the investment, their value will: Options increase. increase, and then decrease. stay the same. It cannot be determined what will happen to the firm value. decrease.

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund promises an expected return of 13% with a standard deviation of 17.9%. The relatively less risky fund promises an expected return and standard deviation of 3.3% and 5.4%, respectively. Assume that the returns are approximately normally distributed. [You may find it useful to reference the z table.] a-1. Calculate the probability of earning a negative return for each fund. (Round "z" value to 2...

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund promises an expected return of 13.7% with a standard deviation of 19.3%. The relatively less risky fund promises an expected return and standard deviation of 3.3% and 6.6%, respectively. Assume that the returns are approximately normally distributed. a-1. Calculate the probability of earning a negative return for each fund. (Round final answer to 4 decimal places.) Probability Riskier fund Less risky fund a-2. Which...

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund promises an expected return of 11.7% with a standard deviation of 20.1%. The relatively less risky fund promises an expected return and standard deviation of 4.2% and 6.2%, respectively. Assume that the returns are approximately normally distributed. [You may find it useful to reference the z table.] a-1. Calculate the probability of earning a negative return for each fund. (Round "z" value to 2...

You are considering the risk-return of two mutual funds for investment. The relatively risky fund promises...

You are considering the risk-return of two mutual funds for investment. The relatively risky fund promises an expected return of 14.7% with a standard of 15.6%. The relatively less risky fund promises an expected return and standard deviation of 6.4% and 3.8%, respectively. Assume that the returns are approximately normally distributed. Using normal probability calculations and complete sentences, give your assessment of the likelihood of getting, on one hand, a negative return and on the other, a return above 10%...

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund promises an expected return of 7.2% with a standard deviation of 15.7%. The relatively less risky fund promises an expected return and standard deviation of 3.9% and 6%, respectively. Assume that the returns are approximately normally distributed. a-1. Calculate the probability of earning a negative return for each fund. (Round final answer to 4 decimal places.)Probability: Riskier fund and Less risky fund a-2. Which...

An individual faces two alternatives for an investment: Asset A has the following probability return schedule: Probability...

An individual faces two alternatives for an investment: Asset A has the following probability return schedule: Probability of return Return (yield) % 0.20 10 0.30 8 0.10 - 4 0.40 - 1 Asset B with a certain return of 2.0%. Calculate the expected return on Asset A.Would a risk averse investor ever choose investment A over investment B? Why or why not? [Hint: You need to calculate and compare expected values to successfully answer this question!]

COMMON STOCK A COMMON STOCK B PROBABILITY RETURN PROBABILITY RETURN 0.25 10% 0.20 −5% 0.50 15%...

COMMON STOCK A COMMON STOCK B PROBABILITY RETURN PROBABILITY RETURN 0.25 10% 0.20 −5% 0.50 15% 0.30 6% 0.25 18% 0.30 16% 0.20 22% expected rate of return and risk) Summerville Inc. is considering an investment in one of two common stocks. Given the information in the popup window: , which investment is better, based on the risk (as measured by the standard deviation) and return of each? a. The expected rate of return for Stock A is %. (Round...

A portfolio gives at 10% return with a standard deviation of 18%. You would like the...

A portfolio gives at 10% return with a standard deviation of 18%. You would like the standard deviation to drop to 14%. What should you do? What should you do if you want the standard deviation to rise to 23%. OUR NOTES give the answers, however, I don't understand how they reached the numbers. The answer to the first part is to add more risk-free assets until they account for 4/18 of the portfolio The answer to the second part...

Subjects