Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Question
Chapter 13, Problem 7P
Summary Introduction
To determine: The ranking of the alternatives based on the risk, from lowest to highest.
Introduction:
Coefficient of variation:
It is the ratio of SD (standard deviation) to the mean that shows the extent of variability in the data in relation to the mean of the population.
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If three investment alternatives all have some degree of risk and different expected returns, which of the following measures could best be used to rank the risk levels of the projects?
Group of answer choices
The standard deviation of returns
The coefficient of correlation
The coefficient of variation
The net present value
What are the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution?
Probability Payoff
0.2 19.0%
0.7 9.0
0.1 4.0
Possible outcomes for three Investment alternatives and their probabilities of occurrence are given next. \table, Alternative 1, Alternative 2, Alternative 3], [Failure, Outcomes, Probability Outcomes, Probability, Outcomes, Probability], [Acceptable 80, 0.20, 80, 0.40,90, 0.30], [Successful, 70, 0.20, 170,0.40, 290, 0.50]] Using the coefficient of variation, rank the three alternatives in terms of risk from lowest to highest. Note: Do not round Intermeciate calculations. Round your answers to 3. decimal places, table[], \table[[Coefficient of], [Variation]], Rank], [Alternative 1... [Alternative 2,,], [Alternative 3..]]
Chapter 13 Solutions
Foundations of Financial Management
Ch. 13 - Prob. 1DQCh. 13 - Discuss the concept of risk and how it might be...Ch. 13 - When is the coefficient of variation a better...Ch. 13 - Explain how the concept of risk can be...Ch. 13 - If risk is to be analyzed in a qualitative way,...Ch. 13 - Assume a company, correlated with the economy, is...Ch. 13 - Assume a firm has several hundred possible...Ch. 13 - Explain the effect of the risk-return trade-off on...Ch. 13 - What is the purpose of using simulation analysis?...Ch. 13 - Assume you are risk-averse and have the following...
Ch. 13 - Myers Business Systems is evaluating the...Ch. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Possible outcomes for three investment...Ch. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10PCh. 13 - Prob. 12PCh. 13 - Waste Industries is evaluating a 70,000 project...Ch. 13 - Prob. 14PCh. 13 - Debby’s Dance Studios is considering the...Ch. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Allison’s Dresswear Manufacturers is preparing a...Ch. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Ms. Sharp is looking at a number of different...Ch. 13 - Prob. 25P
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