(Expected return and risk) Universal Corporation is planning to invest in a security that has several possible rates of return. Given the probability distribution of returns in the popup window, , what is the expected rate of return on the investment? Also compute the standard deviation of the returns. What do the resulting numbers represent? a. The expected rate of return on the investment is ☐ %. (Round to two decimal places.) b. The standard deviation of the returns is %. (Round to two decimal places.) c. What do the resulting numbers represent? (Select the best choice below.) ○ A. Universal could expect a return of 8.75 percent with a 67 percent possibility that this return would vary up or down by 8.04 percent. B. Universal could expect a return of 8.04 percent with a 67 percent possibility that this return would vary up or down by 8.75 percent. C. Universal could expect a return of 8.75 percent with a 25 percent possibility that this return would vary up or down by 8.04 percent. D. Universal could expect a return of 8.04 percent with a 25 percent possibility that this return would vary up or down by 8.75 percent. Data Table PROBABILITY RETURN 0.05 -15% Click to sel 0.15 0% 0.25 5% 0.55 15%

Two investments generated the following annual returns: % -Select- a. What is the average annual return on each investment? Round your answers to one decimal place. The average annual rate of return on X: The average annual rate of return on Y: b. What is the standard deviation of the return on investments X and Y? Round your answers to two decimal places. Standard deviation of X: % Standard deviation of Y: c. Based on the standard deviation, which investment was riskier? was riskier. 20X0 20X1 20X2 20X3 20X4 Investment X 11% 22 30 16 9 Investment Y 22% 24 10 13 12

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Assume that security returns are generated by the single-index model, Ri a BiRM + ei where R₁ is the excess return for security /and Ry is the market's excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security Bi E(Ri} #{@į) A 1.5 61 298 B 1.7 8 15 C 1.9 10 24 a. If oy 26%, calculate the variance of returns of securities A, B, and C. Answer is complete but not entirely correct. Variance Security A 1,521 Security B 1,609 Security C 2,440 b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)