Answered: What are the (a) expected return, (b)…

What are the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution? Probability Payoff 0.2 19.0% 0.7 9.0 0.1 4.0

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 1PROB

See similar textbooks

Related questions

Q: (a) What is meant by the term correlation? What is meant by the term diversification? (b) Suppose…

A: Corrleation for second part is 0.96 To Find: Expected return Standard deviation

Q: There are two assets 1 and 2, with returns X and Y correspondingly. Return X is a random variable…

A: Portfolio risk is the possibility that the mix of assets or units in your investments may fail to…

Q: What is the expected return on a two asset portfolio and what are its variance and standard…

A: Two Asset portfolio: The portfolio that has 2 assets is called as two asset portfolio.

Q: The following table provides information relating to Omega Ltd, as well as the market portfolio. The…

A: Here, To Find: Part A. Omega's M2 value =? Part B. Omega's Sharpe Ratio =?

Q: The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15% 20%…

A: a) Expected Rates of return = Sum of (Probability * Return) b) Standard Deviation = square root of…

Q: 1. Which of the following statements is FALSE? A) When an investment is risky, there are different…

A: A) If investment is risky then it results into different amount of returns depending upon the risk.…

Q: Suppose an investor is appraising an investment under the following conditions: a. Pi 0.15 Forecast…

A: Since multiple questions are asked , we will answer 1st question for you as per prescribed…

Q: Assume that an investment is forecasted to produce the following returns: a 20% probability of a 12%…

A: We have the following information: Forecasted returns of an investment: 20% probability of a 12%…

Q: Which is the best measure of risk for a single asset held in isolation, and which is the best…

A: Answer - Coefficient of variation shall be regarded as the best measure of risk for a single…

Q: An investment has the following possible returns: Return: 13%; Probability: 40% Return: 8%;…

A: The expected return is the minimum required rate of return which an investor required from the…

Q: Suppose an investment is equally likely to have a 37.9% return or a -20% return. The total…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: What are the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an…

A: The expected return on an investment refers to the weighted average of estimated returns and…

Q: Normal probability distribution Assuming that the rates of return associated with a given asset…

Q: a. Compute the expected rate of return on investment i given the following information: the market…

Q: Recall the definition of the correlation coefficient of two random variables, defined as AB PAB The…

A: Portfolio is a bundle of different investments. To reduce or decrease the risk, investors invest the…

Q: Stocks A B and C display the following parameters: Expected Return A 15% Variance 9%2…

A: Expected return of A (Ra) = 15% Standard deviation of A (Sa) = Square root of variance = 3% Expected…

Q: Consider an investment with the following probability distribution: Probability Payoff 0.40 30.0…

A: Probability is the expectation or estimate which is forecasted. For calculation of expected return,…

Q: Suppose that the returns on an investment are normally distributed with an expected return of 16%…

A: Z score = (Observed value - mean) / standard deviation Z score = (19%-16%) / 3% Z score = 3%/3% Z…

Q: We know that the geometric average (time-weighted return) on a risky investment is always lower than…

A: Internal Rate of Return can be greater when compared to the other two averages that are geometric…

Q: d. Calculate the variance and standard deviation of the portfolio assuming that the correlation…

A: The variance and standard deviation of a portfolio: The possibility that the actual outcome will be…

Q: I am struggling with this problem and getting it set up for excel.

A: Calculation of Expected Return and Standard Deviation:The expected return is 9.09% and standard…

Q: Beta is which of the following: A) standard deviation. B) total risk. C) Beta is the relationship…

A: option C is correct Beta is the relationship which is between an investment's return, and the…

Q: Compute the (a) expected return, (b) standard deviation, and (c) coefficient of variation for…

A: probability A return (return-expected return) (return-expected return)2 (return-expected return)2 x…

Q: If standard deviation of security A is 27% and security B is 18%, the correlation coefficient…

A: Standard deviation of security A (sdA) = 27% Standard deviation of security B (sdB) = 18%…

Q: Consider the following information: The possible rate of return for a portfolio for an investment is…

A: expected return of investment =∑npn×rnwhere,pn=probabiltyrn=rate of return

Q: The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard…

A: An investor would always analyze the risk and return of all available investment options before…

Q: Two investments generated the following annual returns (refer to image): a. What is the average…

A: A statistical measure that represents the variation in the return on the stock is term as the…

Q: Use the following information: ElrXOM E[TMS)=29.7%, standard deviationMS = 35.2% = 15.6%, standard…

A: Weight of XOM is 0.43 and weight of MS is 1-0.43= 0.57

Q: Assuming that the rates of return associated with a given asset investment are normally distributed;…

A: a) Calculation of standard deviation:Standard deviation is 0.3516.Standard deviation can be derived…

Q: Calculate the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an…

A: Expected return: It can be computed by taking the product of the probability of a specific payoff…

Q: Consider the following information regarding a new investment that a company intends…

A: Each investment has different risk level which is based upon the market of external situations.…

Q: minimum variance portfolio?

A: A portfolio of securities means a pool of different financial investments in the investment…

Q: The standard deviation of return on investment A is 19%, while the standard deviation of return on…

A: Correlation coefficient: it measures the degree to which two securities move in relation to each…

Q: Following is information for the required returns and standard deviations of returns for A, B, and…

A: The measurement of the risk of portfolio refers to Portfolio Variance. With the help of portfolio…

Q: ments, X and Y. If each investment is carried out, there are four pos outcomes. The present value of…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: a. Suppose an investor is appraising an investment under the following conditions: Forecast NPV Pi…

A: Given: Forecast Pi NPV 1 0.15 $30,000.00 2 0.15 $20,000.00 3 0.5 $15,000.00 4 0.2…

Q: Calculate the expected return and standard deviation for S and T. (i) Calculate the covariance and…

A: Hai there, thank you for the question. As per company guidelines expert can answer only one question…

Q: Topic: Mean and Variance of Discrete Random Variable and the Characteristics of Normal Random…

A: 1 . Mean and std deviation of portfolio A. R(return) P(Probab) r × p (r)2× p -2000 0.3 -600…

Q: The expected rate of return of an investment ________. a. equals one of the possible rates of…

A: Expected or average return is the return calculated by obtaining the mean value of a distribution.…

Q: What is the required return on an investment with a beta of 1.3 if the riskfree rate is 2.0 percent…

A: CAPM evolved as a way to measure this systematic risk. Sharpe found that the return on an individual…

Question

What are the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution?

Probability Payoff

0.2 19.0%

0.7 9.0

0.1 4.0

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

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

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 25.0
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?
Calculate the expected return for an investment with the following probability distribution. Return (%) Probability (%) -10 20 5 20 10 20 17 30 26 10
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
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?
The 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. 0.0447
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 0.21
Given the following probability distribution of returns: Probability Return 0.1 -15.0% 0.25 0.0% 0.3 8.5% 0.25 12.0% 0.1 32.0% what is the expected return?
Suppose an investment is equally likely to have a 37.9% return or a -20% return. The total volatility of returns is closest to: a. 28.95% b. 8.38% c. 20.47% d. 40.94%
For 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%
Based on the following probability distribution, what is the security's expected return? State Probability 1 0.2 -5.0% 2 0.3 10.0 3 0.5 30.0 What is the expected return of the following investment? Probability Payoff
What is the correlation coefficient between returns on any efficient portfolio and returns on the market portfolio in CAPM? 0.5 -0.5 -1 1 O