EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 8, Problem 3PROB
Summary Introduction
Expected
Standard deviation is the financial measure of risk and stability on the
Coefficient of variance is a measure used to calculate the total risk per unit of return of an investment.
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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
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%
Calculate the expected return for an investment with the following probability distribution.
Return (%)
Probability (%)
-10
20
5
20
10
20
17
30
26
10
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- Assuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, r, is 18.7%; and that the coefficient of variation, CV, is 1.88, answer the following questions: a. Find the standard deviation of returns, sigma Subscript rσr. b. Calculate the range of expected return outcomes associated with the following probabilities of occurrence: (1) 68%, (2) 95%, (3) 99%.arrow_forwardThe 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. 0.0447arrow_forwardTwo investments generated the following annual returns (refer to image): a. What is the average annual return on each investment?b. What is the standard deviation of the return on investments X and Y?c. Based on the standard deviation, which investment was riskier?arrow_forward
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