Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment. Standard deviation is the financial measure of risk and stability on the investment returns. Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

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Answer 1

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Students have asked these similar questions

Your portfolio has three asset classes. U.S. government T-bills account for 48% of the portfolio, large-company stocks constitute another 33%, and small-company stocks make up the remaining 19%. If the expected returns are 4.71% for the T-bills, 14.13% for the large-company stocks, and 19.85% for the small-company stocks, what is the expected return of the portfolio? The expected return of the portfolio is %. (Round to two decimal places.)

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Answer 2

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Answer 3

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Answer 4

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Answer 5

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

Answer 6

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

Answer 7

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Answer 8

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%