ssume that an investment is expected to generate the following returns: a 10% chance of a $1,400 return, a 50% chance of a $6,600 return, and a 40% chance of a $1,500 return. What is the expected rate of return on this investment? Note: The solution must be displayed on an Excel sheet using Excel functions such as =PV(...) and =FV(...) etc.
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- Suppose an investor is concerned about a business choice in which there are three projects, the probability and returns are given below. Probability Return 0.4 $100 0.4 40 0.2 -30 The expected value of the uncertain investment is $ ----------- (round off to the nearest dollarSuppose the average return on Asset A is 6.6 percent and the standard deviation is 8.6 percent and the average return and standard deviation on Asset B are 3.8 percent and 3.2 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. a. What is the probability that in any given year, the return on Asset A will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the probability that in any given year, the return on Asset B will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. In a particular year, the return on Asset A was −4.25 percent. How likely is it that such a low return will recur at some point in the future? (Do…CONSIDERING THAT: You want to make an initial investment of $100,000, and maintain a constant weighting of 40% for asset 1 and 60% for asset 2. CALCULATE: What would be the average rate of return on asset 1? What would be the average rate of return on asset 2? What would be the average rate of return of the portafolio?
- Alternatives X and Y have rates of return of 10% and 18%, respectively. What is known about the rate of return on the increment between X and Y if the investment required in Y is (a) larger than that required for X, and (b) smaller than that required for X? (c) Develop two spreadsheet examples that illustrate your responses to parts (a) and (b).uppose the average return on Asset A is 7.1 percent and the standard deviation is 8.3 percent, and the average return and standard deviation on Asset B are 4.2 percent and 3.6 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. a. What is the probability that in any given year, the return on Asset A will be greater than 12 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the probability that in any given year, the return on Asset B will be greater than 12 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. In a particular year, the return on Asset A was −4.38 percent. How likely is it that such a low return will recur at some point in the future? (Do not round…Suppose that sending an analyst to an executive education program will raise the precision of the analyst’s forecasts as measured by R-square by .01. How might you put a dollar value on this improvement? Provide a numerical example.
- Now you turn your attention to estimating the likely returns on the project. You start with the probability distribution given by your primary consultant, which is in the Excel spreadsheet. The project's expected rate of return given these initial numbers is a. 7.40% b. 7.18% c. 6.14% d. 7.99%Consider a decision maker who is comfortable with an investment decision that has a50 percent chance of earning $25,000 and a 50 percent chance of losing $12,500, but notwith any larger investments that have the same relative payoffs. a. Write the equation for the exponential function that approximates this decision maker’sutility functionFor investment A, the probability of the return being 20.0% is 0.5, 10.0% is 0.4, and -10.0% is 0.1 Compute the standard deviation for the investment with the given information. (Round your answer to one decimal place.) a. 85.00% b. 15.00% c. 34.00% d. 17.00% e. 9.00%
- As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were instructed to use the IRR method, and you need to determine an appropriate hurdle rate. The risk-free rate is 4%, and the expected market rate of return is 11%. Your company has a beta of 0.75, and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past. According to CAPM, the appropriate hurdle rate would be A. 15%. B. 9.25%. C. 4%. D. 11%. E. 0.75%Your expectations from a one year investment in Wang Computers are as follows: Probability Rate of Return .15 -.10 .15 -.20 .35 .00 .25 .15 .10 .15 expected rate of return? standard deviation? coeefecient of variation on investment?Answer the problems on the basis of the above graph and the most likely estimates given as follows: If the initial investment is increased by more than 9%, the project is profitable. (a) True (b) False.