(8) Consider projects A and B with the following forecastednet present values sensitive to the evolution of the economy:Scenario1 (р-0.3) II (р-0.7)A (mil. Lei)34B (mil. Lei)26.Use the coefficient of variance to select the preferableproject.CVA=.....CVB=......

Here, Scenario I (p=0.3) II (p=0.7) A (mil.Lei) 3 4 B (mil.Lei) 2 6

(8) Consider projects A and B with the following forecasted net present values sensitive to the evolution of the economy: Scenario I (p=0.3) II (p=0.7) A (mil. Lei) B (mil. Lei) 3 4 6. Use the coefficient of variance to select the preferable project. CVA=... CVB=......

(8) Consider projects A and B with the following forecasted net present values sensitive to the evolution of the economy: Scenario I (p=0.3) II (p=0.7) A (mil. Lei) B (mil. Lei) 3 4 6. Use the coefficient of variance to select the preferable project. CVA=... CVB=......

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

(8) Consider projects A and B with the following forecasted
net present values sensitive to the evolution of the economy:
Scenario
1 (р-0.3) II (р-0.7)
A (mil. Lei)
3
4
B (mil. Lei)
2
6.
Use the coefficient of variance to select the preferable
project.
CVA=.....
CVB=......

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Calculate the project's coefficient of variation. (Hint: Use the expected NPV.) Squared dev. Prob. NPV NPVI - E{NPV) Squared deviation times probability 0.24 S6,289.81 $5,829 SS 0.24 -$2,390.74 -S2,852 SS 0.32 -S1,233.33 -S1,694 $$ 0.20 -$ 400.00 -$861 SS 1.00 $ 461.11 Variance S Standard deviation $ 5.87 6.52 7.25 7.97 8.77
Calculate the project's coefficient of variation. (Hint: Use the expected NPV.) Squared dev. Prob. NPV NPVI - E(NPV) Squared deviation times probability 0.24 $6,289.81 $5,829 S$ 0.24 -$2.390.74 -$2,852 S$ 0.32-$1,233.33 -S1,694 $S 0.20 -$ 400.00 -$861 $S 100 $ 461.1i Variance $. Standard deviation S 5.87 6.52 7.25 7.97 8.77
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6. On the basis of the utility formula below, which investment would you select if you were risk averse with A = 4? Standard Expected return E(t) deviation Investment 0.12 0.30 0.15 0.50 0.21 0.16 0.24 0.21
2) Calculate the envelope set (frontier) for the following four assets and show that the individual assets all lie within this envelope set. 123456 A B E A FOUR-ASSET PORTFOLIO PROBLEM C Variance-covariance 0.01 0.30 0.06 -0.04 0.10 0.01 0.03 0.05 0.03 0.06 0.40 0.02 D 0.05 -0.04 0.02 0.50 F Mean returns 6% 8% 10% 15%
2. The following table gives information on the return and variance of assets A and B, whose covariance is 0.0003: A B 0} 0,0009 0,0012 E (R₂) 0,05 0,06 a. Does the portfolio (1/3 of A and 2/3 of B) dominate the portfolio (2/3 of A and 1/3 of B)? b. Does the portfolio (1/2, 1/2) belong to the efficient frontier? c. If there were the possibility of lending and borrowing at 2%, would the portfolio (1/2, 1/2) belong to the new efficient frontier?
The standard deviation of return on investment a is 0.10, while the standard deviation of return on investment b is 0.04. If the correlation coefficient between the returns on A and B is_____________. A. -0.0447 B. -0.0020 C. 0.0020 D. 0.0447
a. Using the data in the table below alculate the following performance measures.i. Sharpe ratioii. Treynor measureiii. Jensen’s alphaiv. M-squared measurev. T-squared measure, andvi. Appraisal ratio (information ratio) Fund Average return Standard Deviation Beta coefficient Unsystematic Risk A 0.240 0.220 0.800 0.017 B 0.200 0.170 0.900 0.450 C 0.290 0.380 1.200 0.074 D 0.260 0.290 1.100 0.026 E 0.180 0.400 0.900 0.121 F 0.320 0.460 1.100 0.153 G 0.250 0.190 0.700 0.120 Market 0.220 0.180 1.000 0.000 Risk free return 0.050 0.000 b. Out of the performance measures you calculated in part a., which one would you use undereach of the following circumstances:i. You want to select one of the funds as your risky portfolio.ii. You want to select one of the funds to be mixed with the rest of your portfolio,currently composed solely of holdings in the market-index fund.iii. You want to select one of the funds to form an actively managed stock portfolio
- Exercise 2 An investor who maximizes a linear mean-variance utility, U(µp, σp) μpaσ, optimally invests half of her wealth in asset 1, having expected re- turn μ₁ = 10% and standard deviation σ1 10%, and half of her wealth in a risk-free asset, having return FR = 4%. = (a) Find the efficient frontier and represent it in the plane (σp, μP) (assuming that the investor feasible portfolios can include a short position in the risk- free asset). (b) Find the risk-aversion parameter a of the investor. (c) Using the same efficient frontier, for which levels of risk-aversion parameter the investor has a negative position in the risk-free asset? =
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H1.
Analyze investment M and investment J using the below. Scenario Probability M Return J Return Strong .30 18% 20% Normal .30 15% 12% Weak .40 9% 5% 1. What is the range for M? 2. What is the average exp. return for M ? 3. What is the standard deviation* M? 3.85 (given) 4. What is the CV for M? 5. What is the range for J? 6. What is the average exp. return for J? 7. What is the standard deviation J? 6.22 (given) 8. What is the CV for J? 9. Which is the better choice?

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