CFIN -STUDENT EDITION-TEXT
6th Edition
ISBN: 9781337407359
Author: BESLEY
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
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.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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?
What is the expected return of a portfolio of two risky assets if the expected return
E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as
shown below?
Asset (A)
E(R₂) = 10%
SDA = 8%
WA = 0.25
COVAB = 0.006
Select one:
A.
13.75%
B.
7.72%
C.
12.5%
D.
8.79%
Asset (B)
E(RB) = 15%
SDB = 9.5%
WB = 0.75
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- On the basis of the utility formula below, which investment would you select if you were risk averse with A = 4? Investment Expected return E(r) Standard deviation σ 1 0.12 0.30 2 0.15 0.50 3 0.21 0.16 4 0.24 0.21arrow_forwardCalculate the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution: Probability Payoff 0.45 32.0% 0.35 -4.0% 0.20 -20.0%arrow_forwardAssuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, r, is 18.7%; and that the coefficient of variation, CV, is 1.88, answer the following questions: a. Find the standard deviation of returns, sigma Subscript rσr. b. Calculate the range of expected return outcomes associated with the following probabilities of occurrence: (1) 68%, (2) 95%, (3) 99%.arrow_forward
- An investment has probabilities 0.15, 0.34, 0.44, 0.67, 0.2 and 0.15 of giving returns equal to 50%, 39%, -4%, 20%, -25%, and 42%. What are the expected returns and the standard deviations of returns?arrow_forwardCalculate the expected return for an investment with the following probability distribution. Return (%) Probability (%) -10 20 5 20 10 20 17 30 26 10arrow_forwardThe standard deviation of return on investment a is 0.10, while the standard deviation of return on investment b is 0.04. If the correlation coefficient between the returns on A and B is_____________. A. -0.0447 B. -0.0020 C. 0.0020 D. 0.0447arrow_forward
- Compute the (a) expected return, (b) standard deviation, and (c) coefficient of variation for investments with the following probability distributions: Probability r/A r/B 0.3 30.0% 5.0% 0.2 10.0 15.0 0.5 -2.0 25.0arrow_forwardWhat is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₁) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Asset (B) E(R₂) = 15% SDB = 9.5% WB = 0.75arrow_forwardWhat is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25arrow_forward
- Assuming the following returns and corresponding probabilities for Asset D: Rate of Return Probability 10% 30% 15% 40% 20% 30% Compute for: a. Expected rate of return b. The standard deviation c. The coefficient of variationarrow_forward1. Calculate the Expected Return and Risk measured in terms of standard deviation and Variance relating to the following information of a Investment avenue: Return in Percentage: -15-10-5+5+10+15 Probability:.10.15.20.20.25.10arrow_forwardWhat is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(RA) = 25% SDA = 18% WA = 0.75 COVAB= -0.0009 Asset (B) E(R₂) = 15% SDB = 11% W₁ = 0.25arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY