Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 6, Problem 8MC
Summary Introduction
To determine: The average returns and standard deviation.
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Students have asked these similar questions
An investor has an investment that has produced the following returns: Year 1: 10%, Year 2:
5%, Year 3: -7%, Year 4: -3%, Year 5: 12%. Calculate the arithmetic mean return on this
investment.
O 6.75
O 17.00
3.40
8.50
Two investments generated the following annual returns:
%
-Select-
a. What is the average annual return on each investment? Round your answers to one decimal place.
The average annual rate of return on X:
The average annual rate of return on Y:
b. What is the standard deviation of the return on investments X and Y? Round your answers to two decimal places.
Standard deviation of X:
%
Standard deviation of Y:
c. Based on the standard deviation, which investment was riskier?
was riskier.
20X0
20X1
20X2
20X3
20X4
Investment X
11%
22
30
16
9
Investment Y
22%
24
10
13
12
Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities.
Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment:
Stocks
Bonds
Commodities
Probability Return Probability Return Probability Return
20%
15%
0.15
20%
0.6
10%
0.2
0.2
12.5%
0.4
7.5%
0.2
0.25
0.2
0.4
3.8%
0.2
0.2
0%
To maximize your expected return, you should choose
O A. commodities.
B. bonds.
OC. stocks.
OD. All of the portfolios have the same expected return
Chapter 6 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 6 - a. What is meant by the investors required rate of...Ch. 6 - Prob. 2RQCh. 6 - What is a beta? How is it used to calculate r, the...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - What effect will diversifying your portfolio have...Ch. 6 - (Expected return and risk) Universal Corporation...Ch. 6 - (Average expected return and risk) Given the...
Ch. 6 - (Expected rate of return and risk) Carter, Inc. is...Ch. 6 - (Expected rate of return and risk) Summerville,...Ch. 6 - Prob. 5SPCh. 6 - Prob. 9SPCh. 6 - Prob. 10SPCh. 6 - Prob. 11SPCh. 6 - Prob. 12SPCh. 6 - (Capital asset pricing model) Using the CAPM,...Ch. 6 - Prob. 16SPCh. 6 - Prob. 17SPCh. 6 - a. Compute an appropriate rate of return for Intel...Ch. 6 - (Estimating beta) From the graph in the right...Ch. 6 - Prob. 20SPCh. 6 - Prob. 21SPCh. 6 - (Capital asset pricing model) The expected return...Ch. 6 - (Portfolio beta and security market line) You own...Ch. 6 - (Portfolio beta) Assume you have the following...Ch. 6 - Prob. 1MCCh. 6 - Prob. 2MCCh. 6 - Prob. 3MCCh. 6 - Prob. 4MCCh. 6 - Prob. 5MCCh. 6 - Prob. 6MCCh. 6 - Prob. 7MCCh. 6 - Prob. 8MCCh. 6 - Prob. 9MCCh. 6 - Prob. 10MCCh. 6 - Prob. 11MC
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