Boom 0.20 What's the standard deviation of the rate of return?

Q: Consider the following information:            State of Economy Probability of State of Economy Rate…

A: The expected return is the anticipated amount of profit or loss from an investment. The expected…

Q: Assuming that the pure expectations theory is correct, how are expected short-termrates used to…

A: Pure expectations theory believes that expected future rates can be represented by the forward…

Q: A1

A: that an investor expects while putting his investment value at stake. State of Nature…

Q: The present value of a lump sum future amount: O A. increases as the interest rate decreases. O B.…

A: The present value is defined as the discounted amount of the expected future value. The current…

Q: If you perform a NPV analysis on a perspective investment using a "d" = 15% and:       a. the…

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: Return on Asset D in State Return on Asset E in State Return on Asset F in State Boom 0.35 0.060…

A: Standard deviation of a security is a measure of risk of a security which denotes the variation in…

Q: What is kd of investment whose Beta is 1.4 and market premium is 8% while risk free rate is 5%?

A: Here kd of investment means cost of investment, therefore we need to calculate cost of investment…

Q: Compute the expected rate of return on investment i, given the following information: Rf=9%;…

A: The expected rate of return refers to the minimum required rate by the investors for the investment.…

Q: How can standard deviation, a statistical measure of dispersion, be used in investment analysis

A: Standard Deviation: Standard deviation measures the scattering of a data set relevant to its mean.…

Q: 5. How the time based term effects interest rates and its yield curve?

A: Yield curve:- A yield curve is a graph that shows how the yields (interest rates) of bonds with…

Q: 11-2 What is the expected return of the following investment? Probability Payoff 0.3 30.0% 0.2 10.0…

A: The expected return is the minimum required rate of return which an investor required from the…

Q: : (b) Write a detailed note on Minimum Attractive Rate of Return.

A: The minimum attractive rate of return (MARR) is the affordable rate of return utilized in the choice…

Q: The future value of a single sum   A. is generally larger than the present sum.   B. decreases…

A: The future value (FV) is the value of an investment or sum of money at a specified future date,…

Q: Present value is a. the value now of a future amount. b. the amount that must be invested now to…

A: Present Value: It states that the value of  money today is worth more than the same amount of money…

Q: What is the expected rate of return if the beta is 1.14 and the Rf is 4.2%, Rm is 12%

A: According to Capital asset pricing model ,k = Rf+[b*(Rm-Rf)]wherek= expected rate of returnRf= risk…

Q: Assume you are given the following information regarding the expected returns for an asset, for…

A: Formulas used: Expected return = Sum of (Probability of state* Return in that state) Standard…

Q: State of Economy Probability of State Return on Asset D in State Return on Asset E in State Return…

A: Expected Return Mean = sum of (Probability * Return)

Q: What is growth rate?

A: A growth rate is the percentage increase in the cash flows of the company. A growth can be measured…

Q: As you can see in the graph below, two alternatives of A and B are compared to each other. What do…

A: Analysis of Graph: At x%, PWA and PWB intersects. At y%, PWA touches the axis      Cross over…

Q: Question 1 - Expected Return Probability 0.3 0.2 05 What is the expected return of the following…

A: Expected return is the most likely rate of return that is going to be achieved from the investment…

Q: According to the pure expectations theory, what would happen if long-term rateswere not an average…

A: Expectation theory: The theory states that the future short term rate will be based on current long…

Q: Suppose an investment is equally likely to have a 24% retu - 8% return, or a 6% return. The expected…

A: r1=24%r2=-8%r3=6%All equal likely

Q: Suppose that there is an upward shift in the expected rate of return on the risky asset, from 15% to…

A: The Capital Allocation Line (CAL) is a crucial concept in finance that illustrates the trade-off…

Q: Write the discounting formula for the Conversion from Actual to Constant Dollars?

A: Introduction Inflation is a major reason for conversion of actual value to Constant Dollar value.…

Q: How many internal rate of return IRRs (the maximum) are suggested by Descartes' rule of signs? 7,000…

A: For unconventional cash flows, Descartes' Rule of Signs states that the maximum number of Internal…

Q: Required Return Beta Risk-Free Rate Market Return A 12.5% 0.90 8% ? B 9.0% 1.3 ? 8% C…

A: The capital asset pricing model (CAPM) describes the relationship between systematic risk ( measured…

Q: A good approximation to use for the return on an average-risk project would be today’s interest rate…

A: A risk premium is the additional return or compensation that an investor demands for taking on…

Q: Consider an investment with the following probability distribution:   Probability Payoff 0.40 30.0…

A: Probability is the expectation or estimate which is forecasted. For calculation of expected return,…

Q: For the demand function = 75 −p/2, calculate the point price elasticity at ? = 50

A: In this question we need to calculate point price elasticity at ? = 50

Q: What is the internal rate of return of an investment that requires a 10 percent minimum rate of…

A: IRR means internal rate of return.It is rate of return at which present value of cash inflows is…

Q: You are considering an investment with the following probability distribution: 12% 30 8% .50 -6% .20…

A: The coefficient of variation is a measure that depicts how much risk is assumed in comparison to the…

Q: lity function U = E(r) Ac€?o 0.5AA?A?2 and the fact that T-bill offer a risk-free rate of 4%, what…

A: Some investors are risk averse that means they do not want to take risk and they tends to avoid risk…

Q: Risk-free rate is 7% 2. Calculate the required rate of return for A. 1. 8.90% 2. 8.40% 3. 8.70% 4.…

A: Required return is sum product of expected return and respective probability. Required return = ∑p*R…

Q: The constant growth model is useful if?

A: The constant growth model is the model in which growth rate remains same.

Q: Calculate the expected value of the scenario. X₁ P(x₁) -$0.25 0.1 SO 0.5 $0.25 0.1 $0.50 0.3

A: Xi P(Xi)  $          -0.25 0.1  $              -   0.5  $           0.25 0.1  $…

Q: Could you use formulas in order to get those answers, like the images I have attached to this…

A: Capital budgeting is the process through which a company evaluates and selects long-term investment…

Q: If the risk free rate is 3.6 percent and the risk premium is 4.6 percent what is the required…

A: Here,Risk Free Rate is 3.6%Risk Premium is 4.6%

Q: What happens to a future value is you increased the rate, r? What happens to a present value?

A: When the interest rate increases, the future value of a sum now will increase. This is because the…

Q: How does the inflation premium shape the yield curve?

A: The inflation premium is one of the components that shape the yield curve. It reflects the…

Q: The real rate of return is related to O The risk-free rate The risk-free and the inflation rate The…

A: Real rate of returnAn annual profit percentage that is earned on the investment, being adjusted for…

Q: Consider the following information:   State of Economy Probability of State of Economy Rate of…

A: In the case of probabilistic data, return is calculated by multiplying each return by its respective…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.