Why Return On Investment Is More Concerned Than The Risk Essay

a. Calculate the expected return over the 4-year period for each of the three alternatives.

The lower the risk that is associated with an investment, that investment usually has a potential for lower returns. Conversely, if there are high levels of risk associated with an investment, and in turn a potential for a higher return.

a) Apply the coefficient-of-variation decision criterion to these alternatives to find out which is preferred by the angel investor, assuming that he/she is risk-averse.

6. Do bonds reduce the overall risk of an investment portfolio? Let x be a random variable representing annual percent return for the Vanguard Total Stock Index (all Stocks). Let y be a random variable representing annual return for the Vanguard Balanced Index (60% stock and 40% bond). For the past several years, assume the following data. Compute .

5. Give the standard deviation for the mean and median column. Compare these and be sure to identify which has the least variability?

For Investment B: (40 – 5)/ 30= 1.16 standard units= close to 88% to get the 40 million in

1. In terms of my personal characteristics, risk preference, and market beliefs, I concluded my investment philosophy as the following:

From the Risk VS Return graph, we can see that for any given return, the portfolio with both REITs and commodities would yield the lowest risk. Also, the portfolio with only commodities would

3. Change leads to risk, and some significant changes have occurred. Which of these changes lead to the greatest risk?

III. The higher the standard deviation, the less certain the rate of return in any one given year.

Try to work out this question by assuming that Beta’s position had been 99% of equity funds invested in the index fund, and 1% in a riskless money market account. Imagine that you can switch from the money market account to CREIT, BG, or the index fund. Think about the condition for Sarah to be indifferent between switching to CREIT (or BG) and switching to the index.

(See all the possible combinations on TABLE 2). 6. a) The portfolio’s risk would decrease if more stocks were.

d. What would be the investor 's certainty equivalent return for the optimally chosen combination? 2. Consider an investor who has an asset allocation of 50% in equities and the rest in T-Bills. Suppose the expected rate of return on equities is 10%/year and the standard deviation of the return on equities is 15%/year. T-Bills earn 6%/year. a. What is the implied risk aversion coefficient of the investor?

An investor would invest in a security for the return. However that return comes with a premium, the Risk. The higher the risk an investor is willing to take the higher the returns would

2. Maximization of Shareholder wealth: Investment decision is linked with strategic and tactical business decisions and therefore need to achieve desired long-term objectives. The most usual objective being the maximization of shareholder wealth.