(Related to Checkpoint 8.2) (Computing the standard deviation for an individual investment) James Fromholtz is considering whether to invest in a newly formed investment fund. The fund investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund's performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes: a. Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity? b. Calculate the standard deviation in the anticipated returns found in part a. c. Would you be interested in making such an investment? Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy enters into a rapid expansion. a. The expected rate of return from this investment opportunity is 18.50 %. (Round to two decimal places) b. The investment's standard deviation is %. (Round to two decimal places) Data table State of Economy Rapid expansion and recovery Probability 10% 35% 45% 10% Modest growth Continued recession Falls into depression (Click on the icon in order to copy its contents into a spreadsheet.) Print Done Fund Returns 100% 40% 10% -100% - X
(Related to Checkpoint 8.2) (Computing the standard deviation for an individual investment) James Fromholtz is considering whether to invest in a newly formed investment fund. The fund investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund's performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes: a. Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity? b. Calculate the standard deviation in the anticipated returns found in part a. c. Would you be interested in making such an investment? Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy enters into a rapid expansion. a. The expected rate of return from this investment opportunity is 18.50 %. (Round to two decimal places) b. The investment's standard deviation is %. (Round to two decimal places) Data table State of Economy Rapid expansion and recovery Probability 10% 35% 45% 10% Modest growth Continued recession Falls into depression (Click on the icon in order to copy its contents into a spreadsheet.) Print Done Fund Returns 100% 40% 10% -100% - X
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
Related questions
Question
100%
Transcribed Image Text:A James fromholtz IS CONSIDERING
WHETHER TO INVESTID A NEWLY.
FORMED INVESTMENT FUND.
a) € (r) — (100%) (0.10) + (0.40%) (0.35) +
(10%) (0,45) + (-100/6) (0.10) = 118, 50²0
0.1858
b
Transcribed Image Text:(Related to Checkpoint 8.2) (Computing the standard deviation for an individual investment) James Fromholtz is considering whether to invest in a newly formed investment fund. The fund's
investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund's performance will hinge on how the
national economy performs in the coming year. Specifically, he suggested the following possible outcomes:
a. Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity?
b. Calculate the standard deviation in the anticipated returns found in part a.
c. Would you be interested in making such an investment? Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy
enters into a rapid expansion.
N
a. The expected rate of return from this investment opportunity is 18.50 %. (Round to two decimal places)
b. The investment's standard deviation is %. (Round to two decimal places)
ER
View an example Get more help.
X
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