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.

Question

Want to see more full solutions like this?

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%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

What is your understanding of financial management?

Question: Why did you choose to pursue an MBA in Finance?

What are types of finance?

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%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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%