Evaluate the firms required rate of return

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Reference no: EM13205239

1.Given the following information, compute the standard deviation for Investment A:

Payoff

Probability

20%

0.5

10%

0.4

-10%

0.1

2.Based on the information given below, which of the investments would be considered best based on its risk and return relationship? Assume all investors are risk-averse and the investments will be held in isolation, not in a portfolio.


D

E

F

Expected return,

10.0%

18.0%

18.0%

Standard deviation,

7.0%

12.0%

20.0%

3.Consider the following information, and then calculate the required rate of return for the Scientific Investment Fund. The total investment in the fund is $2 million. The market required rate of return is 15 percent, and the risk-free rate is 7 percent.

Stock

Investment

Beta

A

$200,000

1.50

B

300,000

-0.50

C

500,000

1.25

D

1,000,000

0.75

4.Moerdyk Company's stock has a beta of 1.40, the risk-free rate is4.25%, and the market risk premium is5.50%.What is the firm's required rate of return?

5.Explain briefly: total risk, diversifiable risk and market risk and why are these concepts important?

Reference no: EM13205239

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