Calculate the coefficient of variation on each alternative

Reference no: EM131407717

Assume that you recently graduated and you just landed a job as a financial planner with the Cleveland Clinic. Your first assignment is to invest $100,000. Because the funds are to be invested at the end of one year, you have been instructed to plan for a one-year holding period. Further, your boss has restricted you to the following investment alternatives, shown with

their probabilities and associated outcomes.

State of Economy Probability T-Bills Alta Inds. Repo Men American Foam Market Port.
Recession 0.1 8.00% -22.0% 28.0% 10.0% -13.0%
Below Average 0.2 8.00% -2.0% 14.7% -10.0% 1.0%
Average 0.4 8.00% 20.0% 0.0% 7.0% 15.0%
Above Average 0.2 8.00% 35.0% -10.0% 45.0% 29.0%
Boom 0.1 8.00% 50.0% -20.0% 30.0% 43.0%

Barney Smith Investment Advisors recently issued estimates for the state of the economy and the rate of return on each state of the economy. Alta Industries, Inc. is an electronics firm; Repo Men Inc. collects past due debts; and American Foam manufactures mattresses and various other foam products. Barney Smith also maintains an "index fund" which owns a market-weighted fraction of all publicly traded stocks; you can invest in that fund and thus obtain average stock market results. Given the situation as described, answer the following questions.

a. Calculate the expected rate of return on each alternative.

b. Calculate the standard deviation of returns on each alternative.

c. Calculate the coefficient of variation on each alternative.

d. Calculate the beta on each alternative.

e. Do the SD, CV, and beta produce the same risk ranking? Why or why not?

f. Suppose you create a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men. Calculate the expected return, standard deviation, coefficient of variation, and beta for this portfolio. How does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation?

Reference no: EM131407717

Questions Cloud

How are measures of power distance : According to cross-cultural replications of Milgram's studies, how are measures of power distance and rates of obedience related and why?"

Problem regarding the executive pay : Some evidence suggests that there is a direct and positive relationship between a firm's size and its top-level managers' compensation. Explain what inducement you think that relationship provides to upper-level executives.

Is given an example of independent or dependent samples : A week later, they are asked to rate the taste of each coffee on a scale of 1 (poor taste) to 10 (excellent taste). Is this an example of independent samples or dependent samples?

How does each program consider the public health view : Identify both health programs and state which one is more effective in regard to planning and design. How does each program consider the public health view?

Calculate the coefficient of variation on each alternative : Calculate the coefficient of variation on each alternative.

Would given an example of independent or dependent samples : Each faculty member is then asked to rate his or her job satisfaction on a scale of 1 (very dissatisfied) to 10 (very satisfied). Would this be an example of independent samples or dependent samples?

Discuss about the sociologists study social phenomena : Sociologists study social phenomena that are relevant to them in terms of the social climate in which they live. Today's climate involves:the aftermath of a war in Iraq that left Iraq ripe for Isis militants,a radical Sunni group determined to retur..

Determine whether new filtration system could be superior : Given the sample results shown below, use the 0.05 level of significance in determining whether the new filtration system could be superior.

Write paper on model of a free-enterprise capitalist economy : Write a short paper "The model of a free-enterprise capitalist economy (with references to Adam Smith and Karl Marx)." The approximate length of the paper is one page,no plagiarism and copy-paste!

User Account

All Pages