state H M L 1. The expected payoff of A is: 2. The standard deviation of A is: 3. If the price of A is 3, its expected return is: 4. The covariance between A and B is: Probability A B 0.2 0.5 0.3 с 6 10 6 3 7 12 2 5 14

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A: The coefficient of variation (CV) is a statistical measure used to measure the relative variability…

Q: f four stocks A, B, C and D have coefficients of variation of 1.80, 2.00, 1.55 and 1.35,…

A: Coefficient of Variation(CV) measures the risk per unit of return.Coefficient of Variation(CV)  =…

Q: A1

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

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A: Calculations of expected return and standard deviation: Excel workings:

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A: Here,Beta q is 1.25rf is 2%rm is 12%rq is 13.5%

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Q: The standard deviation of a standard normal distribution

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Q: 11. An investor will place one-third of his money into security 1, one-sixth into security 2, and…

A: To find the expected return of the portfolio, we need to calculate the weighted average of the…

Q: Rit = a₁ + B₁RMt + et, t = 1,..., T,i = 1, ..., N RMt~ lid N (0,0%) Eit~ iid N(0,02) cov (€is, Ejt)…

A: In this question we will be explaining the Single Index Model Regression with the given equation. We…

Q: - Exercise 2 An investor who maximizes a linear mean-variance utility, U(µp, σp) μpaσ, optimally…

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A: Probability Return 0.5 20% 0.4 10% 0.1 -10%

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A: Coefficient of Variation = Standard deviation / Expected return---

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Q: 3. Security A has the following probability distribution of returns: Scenario Probability Return 0.1…

A: Calculation: Formula snip:

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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.