Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment. Standard deviation is the financial measure of risk and stability on the investment returns. Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

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Answer 1

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Students have asked these similar questions

Calculate 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%

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?

Answer 2

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Answer 3

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Answer 4

Question

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

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Answer 5

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

Answer 6

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%

Therefore, the standard deviation is 4.5%.

Calculate the coefficient of variance as follows:

Coefficient of variance=Standard deviationExpected return =4.5%10.5% =0.429 or 4.29%

Therefore, the coefficient of variance is 4.29%.

Answer 7

Chapter 8, Problem 1PROB

Summary Introduction

Expected rate of return is the anticipated profit or loss of an investment to be received by the investor. It is computed by expecting the probabilities of a maximum range of returns on an investment.

Standard deviation is the financial measure of risk and stability on the investment returns.

Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.

Answer 8

Expert Solution & Answer

Explanation of Solution

Calculate the expected return as follows:

Expected return=[Probability×Payoff] =(0.2×19%)+(0.7×9%)+(0.1×4%) =3.8%+6.3%+0.4% =10.5%

Therefore, the expected return is 10.5%.

Calculate the standard deviation as follows:

Standard deviation=∑Probability×(Payoff−Expected return)2=(0.2×(19%−10.5%)2)+(0.7×(9%−10.5%)2)+(0.1×(4%−10.5%)2) =(0.2×(8.5%)2)+(0.7×(−1.5%)2)+(0.1×(−6.5%)2) =(0.2×72.25%)+(0.7×2.25%)+(0.1×42.25%)=14.45%+1.575%+4.225% =20.25% =4.5%