Question 1 Two assets, F and G are currently being considered by Perth Industries. The probability distributions of expected returns for the assets are shown in the following table: Asset F Asset G Probability 0.2 0.4 0.4 Return -5% 10% 15% Probability 0.4 0.3 0.3 Return 35% 10% -10% a) Calculate the expected return for each of the two assets. b) Calculate the standard deviation for each of the two assets. Which appears to have the greatest risk? c) Calculate the coefficient of variation for each of the two assets. If you are an investor, which asset would you prefer? Why? d) Which asset would a risk-averse investor choose? Which asset would a risk-neutral (indifferent) investor choose?

Question 1 Two assets, F and G are currently being considered by Perth Industries. The probability distributions of expected returns for the assets are shown in the following table: Asset F Asset G Probability 0.2 0.4 0.4 Return -5% 10% 15% Probability 0.4 0.3 0.3 Return 35% 10% -10% a) Calculate the expected return for each of the two assets. b) Calculate the standard deviation for each of the two assets. Which appears to have the greatest risk? c) Calculate the coefficient of variation for each of the two assets. If you are an investor, which asset would you prefer? Why? d) Which asset would a risk-averse investor choose? Which asset would a risk-neutral (indifferent) investor choose?

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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Assume that you have obtained the following information for Asset A: Rate of Return Probability 5.5% 25% 7.25% 55% 11% 20% Compute the expected rate of return for Asset A, using the information provided in thechart above Assume that the standard deviation of the expected returns for Asset A is 1.87%. With information and the expected rate of return that you calculated for Asset A in Part A of this problem, compute the co-efficient of variation for Asset A.
You have data on the following assets: asset Expected return Standard DeviationA 15.0% 21.0%B 15.5% 20.2%C 18.0% 25.0% Calculate the coefficient of variation for each of the assets. Which one is the best investment option?
Which asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset Return Beta Standard Deviation Asset A 11% 0.95 35% Asset B 13% 1.00 35% Asset C 9% 1.20 30% 1.) Asset C 2.) All three Assets 3.) Asset B 4.) Asset A and Asset B 5.) Asset A
Possible returns and their probabilities for an asset is given in the table below. The expected return is 30.25%. Calculate the standard deviation of the asset's return. Probability 0.40 0.45 0.15 13.92% O 17.84 % 18.55% O 19.09% 16.59% Return 0.52 0.17 0.12
Given the choice between two assets with expected returns of 13.5% each, the standard deviation of asset A of 15% and the standard deviation of asset B of 16.5%, a rational investor would choose: O A. either asset. B. asset B. C. asset A. P Type here to search
The expected value and the standard deviation of returns for asset A is Asset A Possible Outcomes Probability Returns (%) 0.25 10 0.45 12 0.30 16 Pessimistic Most likely Optimistic OA. 12 percent and 2.3 percent OB. 12 percent and 4 percent O C. 12.7 percent and 4 percent O D. 12.7 percent and 2.3 percent . (See below.)
Four assets have the following distribution of returns. Probability Rate of return (%)Occurrence A B C D0.1 10.0 6.0 14.0 2.00.2 10.0 8.0 12.0 6.00.4 10.0 10.0 10.0 9.00.2 10.0 12.0 8.0 15.00.1 10.0 14.0 6.0 20.0 In each asset alculate The expected rate of return, standard deviation, variance coefficient of variation
Asset M Asset N j P?? Return, ?? P?? Return, ?? 1 0.25 10% 0.15 10% 2 0.25 -6% 0.30 8% 3 0.15 2% 0.20 15% 4 0.20 5% 0.05 0% 5 0.15 20% 0.30 -2% Calculate the expected value of return, ?̅, for each of the two assets. Which provides the largest expected return? Calculate the standard deviation, ?? , for each of the two assets’ returns. Which appears to have the greatest risk? Calculate the portfolio expected return if you invest 27% of your wealth in M and 73% inN, of your total wealth of $40,000.
Assuming the following returns and corresponding probabilities for Asset D: Rate of Return Probability 10% 30% 15% 40% 20% 30% Compute for: a. Expected rate of return b. The standard deviation c. The coefficient of variation
Assume that we wish to determine the expected value and standard deviation of returns of Assets A. The expected returns of assets A and probabilty for each of the next 5 years are given in columns 1 and 2 respectively in the table. Find the expected value and standard deviation of returns for Asset A . Year Asset A Prob. 2019 18,00 0,25 2020 16,00 0,20 2021 13,00 0,15 2022 9,00 0,20 2023 11,00 0,20
Question 3: Assume that we wish to determine the expected value and standard deviation of returns of Assets A. The expected returns of assets A and probabilty for each of the next 5 years are given in columns 1 and 2 respectively in the table. Find the expected value and standard deviation of returns for Asset A Year Asset A Prob. 2019 18,00 16,00 13,00 9,00 11,00 0,25 0,20 0,15 0,20 0,20 2020 2021 2022 2023
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75

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