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CFIN
5th Edition
ISBN: 9781305661639
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
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Chapter 8, Problem 5PROB
Summary Introduction
Expected
Standard deviation is the financial measure of risk and stability on the
Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.
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Students have asked these similar questions
Normal probability distribution
Assuming that the rates of return associated with a given asset investment are normally distributed; that the expected return,
r,
is
10.4%;
and that the coefficient of variation,
CV,
is
1.01,
answer the following questions:
a. Find the standard deviation of returns,
σr.
b. Calculate the range of expected return outcomes associated with the following probabilities of occurrence: (1) 68%, (2) 95%, (3) 99%.
Supposing the return from an investment has the following probability distribution
Return Probability
R (%)
8 0.2
10 0.2
12 0.5
14 0.1
Required:
What is the expected return of the investment?
What is the risk as measured by the standard deviation of expected returns?
The expected rate of return of an investment ________.
a. equals one of the possible rates of return for that investment
b. equals the required rate of return for the investment
c. is the mean value of the probability distribution of possible returns
d. is the median value of the probability distribution of possible returns
e. is the mode value of the probability distribution of possible returns
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