Two As the head of Business Development of the BSA, a client has presented a business plan that has the following projected returns for your consideration. Stock A State of the Economy( Excellent Normal Worse) Returns: 32% -5% 21% Probability : 0.40 0.40 0.20 Stock B Returns 40% 8% 25% Probability 0.30 0.20 0.50 Required; a. Calculate the expected return for each stock. b. Calculate the risk for each stock. c. Determine the coefficient of variation for each stock.
Two As the head of Business Development of the BSA, a client has presented a business plan that has the following projected returns for your consideration. Stock A State of the Economy( Excellent Normal Worse) Returns: 32% -5% 21% Probability : 0.40 0.40 0.20 Stock B Returns 40% 8% 25% Probability 0.30 0.20 0.50 Required; a. Calculate the expected return for each stock. b. Calculate the risk for each stock. c. Determine the coefficient of variation for each stock.
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
uestion Two
As the head of Business Development of the BSA, a client has presented a business plan that
has the following projected returns for your consideration.
Stock A
State of the Economy(
Excellent
Normal
Worse)
Returns:
32%
-5%
21%
Probability :
0.40
0.40
0.20
Stock B
Returns
40%
8%
25%
Probability
0.30
0.20
0.50
Required;
a. Calculate the expected return for each stock.
b. Calculate the risk for each stock.
c. Determine the coefficient of variation for each stock. Explain your answer.
d. Explain three (3) reasons why a company will prefer long-term borrow to shortterm borrowing.
Question Three
a. Capital budgeting is the process of identifying, analyzing and selecting investment
projects whose returns are expected to extend beyond one year. This capital
budgeting decision for an investment requires the analysis of some factors. List and
explain three (3) of these factors.
b. You have an investment opportunity that requires an initial investment of GH¢5,000
today and will pay GH¢6,000 in a year’s time. If an alternative investment with similar
risk pays 25%, should you invest?
c. You will retire in 18 years and you currently have GH¢250,000 saved, and your plan is
to have GH¢1,000,000 at your retirement. What annual interest rate must you earn to
reach this goal, assuming you do not save any additional funds?
d. With practical example(s), differentiate between compounding and discounting.
e. As a Business Finance student, what is the essence of the valuation principle in your
personal life?
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