Calculate a one-year holding period return (HPR) for the following two investment alternatives: Which investment would you prefer, assuming they are of equal risk? Explain. The HPR for investment X is %. (Enter as a percentage and round to two decimal places.)
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- Which of the following statements is true? Select one of the options i. – iii.The future value of an investment (A) after two years with an annualcompound interest (i) isi. less than the future value of the investment (A) after two years withsimple interest (i)ii. equals to the future value of the investment (A) after two years withsimple interest (i)iii. greater than the future value of the investment (A) after two years withsimple interest (i).Suppose you have a project that has a 0.4 chance of tripling your investment in a year and a 0.6 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) What is the standard deviation?What is the (exact) nominal return on an investment that earns a real return of 14.7% while inflation is 7.4%? Enter your response, in percent (%), correct to TWO decimal places.
- Given the following variables: S = $50, E = $45, T = 1 year, r = 2 %, and P = $5; if the call option is selling for $11 (C = $11), what arbitrage opportunity exists? Outline the strategy and the profit to be realized.Which of the following statements is true? Select one of the options i. – iii.As the number of compounding periods increases, the value of the AnnualPercentage Rate (APR)i. increases and is higher than the nominal rate of interestii. equals to the nominal rate of interestiii. increases and is lower than the nominal rate of interest.Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below. A B C Probabilities return 0.05 0.50% -3.60% 3.60% 0.35 0.60% 2.75% 0.15% 0.45 3.66% 1.45% 0.45% 0.15 -4.80% -0.60% 6.30% Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?
- You are considering two alternative two-year investments: You can invest in a risky asset with a positive risk premium and returns in each of the two years that will be identically distributed and uncorrelated, or you can invest in the risky asset for only one year and then invest the proceeds in a risk-free asset. Which of the following statements about the first investment alternative (compared with the second) are true?a. Its two-year risk premium is the same as the second alternative.b. The standard deviation of its two-year return is the same.c. Its annualized standard deviation is lower.d. Its Sharpe ratio is higher.e. It is relatively more attractive to investors who have lower degrees of risk aversion.Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below (Attached image). Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?Suppose the average return on Asset A is 6.6 percent and the standard deviation is 8.6 percent and the average return and standard deviation on Asset B are 3.8 percent and 3.2 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. a. What is the probability that in any given year, the return on Asset A will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the probability that in any given year, the return on Asset B will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. In a particular year, the return on Asset A was −4.25 percent. How likely is it that such a low return will recur at some point in the future? (Do…
- The following investments and probabilities are presented: INVESTMENT 1 Years yield probability 1 11 0.25 2 13 0.25 3 19 0.10 4 16 0.20 5 15 0.20 INVESTMENT 2 Years yield PROBABILITY 1 18 0.15 2 16 0.15 3 11 0.40 4 10 0.15 5 11 0.15 1 Calculate the expected return on each investment 2 Calculate the standard deviation of both investments and indicate which investment is riskier and why? 3 Calculate the coefficient of variation of both investments and indicate which investment is riskier and why? In this case it is…a. Given the following holding-period returns, LOADING... , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.87 and the risk-free rate is 6 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? Month Zemin Corp. Market 1 5 % 6 % 2 2 1 3 2 0 4 −4 −1 5 4 3 6 3 4Two investments generated the following annual returns (refer to image): a. What is the average annual return on each investment?b. What is the standard deviation of the return on investments X and Y?c. Based on the standard deviation, which investment was riskier?