The following investments and probabilities are presented:                                   INVESTMENT 1                   Years yield probability                 1 11 0.25                 2 13 0.25                 3 19 0.10                 4 16 0.20                 5 15 0.20                                                             INVESTMENT 2                   Years yield PROBABILITY                 1 18 0.15                 2 16 0.15                 3 11 0.40                 4 10 0.15                 5 11 0.15                                       1 Calculate the expected return on each investment             2 Calculate the standard deviation of both investments and indicate which investment is riskier and why?   3 Calculate the coefficient of variation of both investments and indicate which investment is riskier and why?   In this case it is necessary to calculate this coefficient or with only the standard deviation is sufficient?

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A: Since the required return is equal for both investments, we can determine which investment gives…

Q: Problem 18-7 (Algo) A manager buys three shares of stock today, and then sells one of those shares…

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Q: The annual growth rate of your investment can be measured by A. THE ANNUAL MEAN OF YOUR ANNUAL…

A: Several methods have been prescribed to measure the annual growth rate of an investment. We have to…

Q: Multiple Choice O O O -24.34% -12.61% -59.53% -36.07%

A: Mean return=10.85%Standard deviation=23.46%Find out maximum loss for 2.5% probability.

Q: B 15.5% 20.2%

A: The coefficient of variation can be computed as follows :

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A: Positive linear correlation:- It is the relationship between two variables where an increase in the…

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A:

Q: Evaluate the two strategies adopted by financial institution to manage their risks.

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A: The calculations for the expected rates of return and standard deviations for each asset, and the…

Q: An asset has an average return of 11.03 percent and a standard deviation of 21.10 percent. What…

A: Average return = 11.03%Standard deviation = 21.10%Probability = 95%,Z score equivalent to 95%…

Q: An investor has an investment that has produced the following returns: Year 1: 10%, Year 2: 5%, Year…

A: Arthmetic mean is rate of return that is calculated by summing up all returns and dividing by the…

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: You are given the following information for two funds A and B, relating to their performance over…

A: Treynor Ratio, Sharpe Ratio, and Jensen's Alpha for Funds A and BLet's calculate the Treynor ratio,…

Q: a rational investor would choose:

A: Standard Deviation: It measures the variation for a set of values. It also indicates the risk of…

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A: The rate of return that an investor is expected to earn from the investment is term as the expected…

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A: rational investor avoid risk.

Q: d) The return on the risk-free asset is 5%. You are given the following information: Security Firm A…

A: Risk free rate (Rf) = 0.05Market return (Rm) = 0.12Market standard deviation (Sm) = 0.20

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A: Systematic risk refers to the type of risk which has an impact on the entire market. Also known as…

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

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

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

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A: Expected return of investing equally in all three assets = 1/3 * Return on M + 1/3 * Return on N +…

Q: Assume that you have obtained the following information for Asset A:   Rate of Return Probability…

A: The measure that shows the deviation or all figures from average figure which is ascertained by…

Q: The expected return for Asset Y is 24%, and it has a standard deviation of 14%. The expected return…

A: Standard deviation is one of the measure of risk. Less the standard deviation , less risky the asset…

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A: The correlation coefficient shows relationship between the 2 variables.

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A: Annual return The return an investor receives from an investment within one fiscal year is called…

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A: Two asset portfolio expected return:  The anticipated return on an investment is the value assigned…

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A: To find the required return for the asset using the Capital Asset Pricing Model (CAPM), you can use…

Q: Betas Answer the questions beiow for assets A to D shown in the following table. Asset Beta so B…

A: Note: Hi! Thank you for the question, As per the honor code, we are allowed to answer three…

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.