Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios stocks, bonds, or commodities Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment: Commodities Probability Return Probability Return Probability Return 20% 15% Stocks Bonds 0.15 20% 0.6 10% 0.2 0.2 02 0.25 04 12.5% 0.4 7.59% 0.2 896 3.8% 0.2 56 0.2 To maximize your expected return, you should choose OA commodities O B. bonds Oc. stocks OD. All of the portfolios have the same expected returm
Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios stocks, bonds, or commodities Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment: Commodities Probability Return Probability Return Probability Return 20% 15% Stocks Bonds 0.15 20% 0.6 10% 0.2 0.2 02 0.25 04 12.5% 0.4 7.59% 0.2 896 3.8% 0.2 56 0.2 To maximize your expected return, you should choose OA commodities O B. bonds Oc. stocks OD. All of the portfolios have the same expected returm
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities.
Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment:
Stocks
Bonds
Commodities
Probability Return Probability Return Probability Return
20%
15%
0.15
20%
0.6
10%
0.2
0.2
12.5%
0.4
7.5%
0.2
0.25
0.2
0.4
3.8%
0.2
0.2
0%
To maximize your expected return, you should choose
O A. commodities.
B. bonds.
OC. stocks.
OD. All of the portfolios have the same expected return
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