Rate of return . Introduction: Return: In financial context, return is seen as percentage that represents the profit in an investment.

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Answer 1

Question

Chapter 8, Problem 8.9P

a)

Summary Introduction

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

b)

Summary Introduction

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

c)

Summary Introduction

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

d)

Summary Introduction

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

e)

Summary Introduction

To determine:

Investment decision

Introduction:

Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

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uestion Two As the head of Business Development of the BSA, a client has presented a business plan that has the following projected returns for your consideration. Stock A State of the Economy( Excellent Normal Worse) Returns: 32% -5% 21% Probability : 0.40 0.40 0.20 Stock B Returns 40% 8% 25% Probability 0.30 0.20 0.50 Required; a. Calculate the expected return for each stock. b. Calculate the risk for each stock. c. Determine the coefficient of variation for each stock. Explain your answer. d. Explain three (3) reasons why a company will prefer long-term borrow to shortterm borrowing. Question Three a. Capital budgeting is the process of identifying, analyzing and selecting investment projects whose returns are expected to extend beyond one year. This capital budgeting decision for an investment requires the analysis of some factors. List and explain three (3) of these factors. b. You have an investment…

INV4 1-4 Options are often used in combination with stocks to reduce risk or to produce other avenues of revenue. Buying protective puts guards against downside risk while allowing for upside potential. Writing covered calls allow investors to earn premium income on a stock they expect to remain stable in price. Wang Foo Ltd. has a current stock price of $80, does not pay dividends, and has an expected standard deviation of .30. Also, the risk-free rate is 10% per year, continuously compounded. The price of a European call option contract of 100 shares is $1,726.39. The price of a European put option contract of 100 shares is $220.60. 4. What will be the payoff and profit of the protective put if the stock price on maturity is $60, $70, $76, $80, $86?

INV4 1-2 Options are often used in combination with stocks to reduce risk or to produce other avenues of revenue. Buying protective puts guards against downside risk while allowing for upside potential. Writing covered calls allow investors to earn premium income on a stock they expect to remain stable in price. Wang Foo Ltd. has a current stock price of $80, does not pay dividends, and has an expected standard deviation of .30. Also, the risk-free rate is 10% per year, continuously compounded. The price of a European call option contract of 100 shares is $1,726.39. The price of a European put option contract of 100 shares is $220.60. 2. What is the cost of buying a protective put?

Answer 2

Question

Chapter 8, Problem 8.9P

a)

Summary Introduction

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

b)

Summary Introduction

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

c)

Summary Introduction

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

d)

Summary Introduction

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

e)

Summary Introduction

To determine:

Investment decision

Introduction:

Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

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Answer 3

Question

Chapter 8, Problem 8.9P

a)

Summary Introduction

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

b)

Summary Introduction

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

c)

Summary Introduction

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

d)

Summary Introduction

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

e)

Summary Introduction

To determine:

Investment decision

Introduction:

Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

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Answer 4

Question

Chapter 8, Problem 8.9P

a)

Summary Introduction

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

b)

Summary Introduction

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

c)

Summary Introduction

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

d)

Summary Introduction

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

e)

Summary Introduction

To determine:

Investment decision

Introduction:

Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

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Answer 5

Chapter 8, Problem 8.9P

a)

Summary Introduction

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

b)

Summary Introduction

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

c)

Summary Introduction

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

d)

Summary Introduction

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

e)

Summary Introduction

To determine:

Investment decision

Introduction:

Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

Answer 6

Chapter 8, Problem 8.9P

a)

Summary Introduction

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

Answer 7

Chapter 8, Problem 8.9P

a)

Summary Introduction

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

Answer 8

b)

Summary Introduction

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

Answer 9

b)

Summary Introduction

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

Answer 10

c)

Summary Introduction

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

Answer 11

c)

Summary Introduction

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

Answer 12

d)

Summary Introduction

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

Answer 13

d)

Summary Introduction

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

Answer 14

e)

Summary Introduction

To determine:

Investment decision

Introduction:

Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

Answer 15

e)

Summary Introduction

To determine:

Investment decision

Introduction:

Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

Answer 16

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Answer 17

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Answer 18

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Answer 19

Ch. 8.1 - What is risk in the context of financial decision...Ch. 8.1 - Prob. 8.2RQ Ch. 8.1 - Compare the following risk preferences: (a) risk...Ch. 8.2 - Explain how the range is used in scenario...Ch. 8.2 - Prob. 8.5RQ Ch. 8.2 - Prob. 8.6RQ Ch. 8.2 - What does the coefficient of variation reveal...Ch. 8.3 - What is an efficient portfolio? How can the return...Ch. 8.3 - Prob. 8.9RQ Ch. 8.3 - How does international diversification enhance...

Rate of return . Introduction: Return: In financial context, return is seen as percentage that represents the profit in an investment.

Solution Summary: The author explains that the rate of return on an investment can be calculated using the following formula: cRate of Return=left.

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

Want to see the full answer?

Chapter 8 Solutions

Rate of return . Introduction: Return: In financial context, return is seen as percentage that represents the profit in an investment.

Solution Summary: The author explains that the rate of return on an investment can be calculated using the following formula: cRate of Return=left.

To discuss: Rate of return. Introduction: Return: In financial context, return is seen as percentage that represents the profit in an investment.

To discuss: Average Rate of return. Introduction: Return: In financial context, return is seen as percentage that represents the profit in an investment.

To discuss: Standard deviation. Introduction: Return: In financial context, return is seen as percentage that represents the profit in an investment. The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

To discuss: Coefficient of variation Introduction: The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.

Want to see the full answer?

Chapter 8 Solutions

To discuss:

Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

To discuss:

Average Rate of return.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

To discuss:

Standard deviation.

Introduction:

Return: In financial context, return is seen as percentage that represents the profit in an investment.

The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.

To discuss:

Coefficient of variation

Introduction:

The coefficient of variation is an asset risk indicator that measures the relative dispersion. It describes the volatility of asset returns relative to its mean or expected return.