Question
In: Finance
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
jeff jeffy answered 1 year agoRelated Solutions
A risk-free investment of $5000 will return 3%. A risky $5000 investment has a 23% chance...
A risk-free investment of $5000 will return 3%. A risky $5000
investment has a 23% chance of defaulting and returning only $3500.
How much must the risky investment promise to return?
14.8%
13.0%
11.5%
12.9%
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...
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