You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2018-2021 Year Asset F Asset G Asset H 2019 5 12 12 2020 10 9 7 2021 13 21 4 2022 6.5 6 10.5 Using these assets, you have isolated the three investment alternatives shown in the following table. Alternative Investment 1 100% of asset G 2 40% of asset F and 60% of asset G 3 50% of asset F and 50% of asset H Calculate the expected return over the 4-year period for each of the three alternative Calculate the standard deviation of returns over the 4-year period for each of the three alternatives. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives. On the basis of your findings, which of the three investment alternatives do you recommend? Why?
You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2018-2021 Year Asset F Asset G Asset H 2019 5 12 12 2020 10 9 7 2021 13 21 4 2022 6.5 6 10.5 Using these assets, you have isolated the three investment alternatives shown in the following table. Alternative Investment 1 100% of asset G 2 40% of asset F and 60% of asset G 3 50% of asset F and 50% of asset H Calculate the expected return over the 4-year period for each of the three alternative Calculate the standard deviation of returns over the 4-year period for each of the three alternatives. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives. On the basis of your findings, which of the three investment alternatives do you recommend? Why?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 11P
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Question
- You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2018-2021
Year |
Asset F |
Asset G |
Asset H |
2019 |
5 |
12 |
12 |
2020 |
10 |
9 |
7 |
2021 |
13 |
21 |
4 |
2022 |
6.5 |
6 |
10.5 |
Using these assets, you have isolated the three investment alternatives shown in the following table.
Alternative |
Investment |
|
|
1 |
100% of asset G |
2 |
40% of asset F and 60% of asset G |
3 |
50% of asset F and 50% of asset H |
|
|
- Calculate the expected return over the 4-year period for each of the three alternative
- Calculate the standard deviation of returns over the 4-year period for each of the three alternatives.
- Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives.
- On the basis of your findings, which of the three investment alternatives do you recommend? Why?
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