Chap 9 Mini Case

15. Investment A has an expected return of $25 million and investment B has an expected return of $5 million. Market risk analysts believe the standard deviation of the return A is $10 million, and for B is $30 million (negative returns are possible here).

Standard deviation is a way of visualizing how spread out points of data are in a set. Using standard deviation helps to determine how rare or common an occurrence is. For example, data points falling within the boundaries of one standard deviation typically account for about 68% of data and those between (+/-)1 standard deviation and (+/-)2 standard deviations make about 27% combined. This can be better visualized by using a bell graph. Using the mean and standard deviation, the points where standard deviations occur can be drawn on the graph to better understand which data is rare and which is common.

Corporate finance is important to all managers because it allows a manager to be able to predict the funds the company will need for their upcoming projects and think about ways to organize and acquire those funds.

Standard deviation is important in comparing two different sets of data that has the same mean score. One standard deviation may be small (1.85), where the other standard deviation score could be quite large (10)(Rumsey,

Problem 1: Jonathon Barrs is a manager for Easy Manufacturing, LLC. He wishes to evaluate three possible investments. These investments are for the purchase of new machine tools from Germany, Japan, and a local US manufacturer. The firm earns 10% on its investments and they have a risk index of 5%. The chart below lays out the expected return and expected risks of the three projects.

Theoretically from the recorded data the calculated mean, median, and mode will be the most accurate representation of the real world value. The difference between the highest recorded value and lowest recorded value is the range in the set of data. Standard deviation (s) is a quantity calculated to indicate an extend of deviation for a group of data as a whole (Marshall). This is calculated using:

This case involves a male and female Hispanic, entering TJ Maxx during business hours, and concealing various items in their bags. The suspects attempted to leave the store without paying for the items. Loss Prevention Agent Sergio Castro made contact with the suspects at the front entrance and retrieved all of the loss except for a black Michael Kors purse, valued at $159.99.

Kenny is a teenager who has experienced uncontrollable bodily and facial movements, various uncontrolled vocalizations, and other compulsions such as excessive hand washing and wringing. He has been treated with Clonidine, Haldol, pimozide and buspirone. This patient was diagnosed with Tourette’s Syndrome. Clonidine is a vasodilator that allows for blood to flow more easily to the brain. This lowers blood pressure and helps treat the tics the patient experiences(1). Haldol and Pimozide are antipsychotics that blocks dopamine receptors in the brain. This would help treat the compulsive behaviors (2). Buspirone is used to treat anxiety disorders. It binds to serotonin receptors in

Standard Deviation for the mean column is 0.476Standard Deviation for the median column is 0.754Standard deviation for the mean column has least variability

σAB = 0.3 × 0.07 × 0.14 + 0.4 × 0.06 × (−0.04) + 0.3 × (−0.08) × 0.08 − 0.021 × 0.05

Given that a machine cost us the same price on day 50 of the simulation as it did on day 217, and the fact that buying each machine represents a tradeoff of gaining higher potential for profits in the future (through the fact that more machines afford us greater utilization at each station) for a lower cash balance in the present, we felt it was best to try to determine how many machines we would need and purchase them at the beginning of day 51.

When compared with the industry, the inventory turnover of S&S Air of 21.43 times is well above the industry upper quartile of 10.89 times. This indicates that S&S Air is much more efficient than the industry average at inventory management.

We can’t figure out the riskiness of the stock by just looking at the expected return. In the case of individual stock, Reynolds at 1.87 is giving a higher return compared to Hasbro at 1.18. We wouldn’t know the riskiness unless we look at the standard deviation or the variance of the stock. By comparing the two, Reynolds has a higher variance and standard deviation and will be more risky.

The client wants to minimise risk subject to the requirement that the annual income from the investment be at least $60,000. According to Innis’s risk measurement system, each unit

High Tech and Collections are two other investment alternatives for the client. The expected rate of return is 12.4% for investing in High Tech and 1.0% for Collections. Investors might choose to invest in one of these two depending on how well they predict the economy will do. High Tech has a direct relationship with the movement of the economy. If the market is expected to increase, then this would be a good investment. Collections, however, moves in the opposite direction of the economy. If a decline is expected, then investors would use this as a hedge against the negative movement of the economy.