TAN Co. is assessing two options: Project A and Project B. If the standard deviation for B is 3.12%, what is B's co-efficient of variation (CV)? State as decimal.Scenario AnalysisBoomMost likelyRecessionProbability30%50%20%AB0.150.120.080.080.000.03Avg. returnRangeThe highest risk is Project A, B, Both, or neither?Based on financial analysis TAN Co. should choose project A, B either, or Both?

In above answer, Project B appears to be the safer choice for TAN Co. because it demonstrates lower…

Answered: TAN Co. is assessing two options:…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

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Assume you are risk-averse and have the following three choices. Standard Deviation Project A B C Expected Value $ 2,520 2,930 2,480 $ 1,420 1,050 1,040 a. Compute the coefficient of variation for each. Note: Round your answers to 3 decimal places. Project A B C Coefficient of Variation b. Which project will you select? O Project C O Project A O Project B
Assume you are risk-averse and have the following three choices Expected Value $ 2,200 Standard Deviation $ 1,440 Project A B C 2,730 2,250 Project A B C 1,960 1,490 a. Compute the coefficient of variation for each. Note: Round your answers to 3 decimal places. Coefficient of Variation b. Which project will you select? O Project A O Project B O Project C
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
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25
APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?
Assume that Allied’s average project has a coefficient of variation (CV) in the range of 1.25 to 1.75.Would the lemon juice project be classified as high risk, average risk, or low risk? What type of risk isbeing measured here?
(8) Consider projects A and B with the following forecasted net present values sensitive to the evolution of the economy: Scenario 1 (р-0.3) II (р-0.7) A (mil. Lei) 3 4 B (mil. Lei) 2 6. Use the coefficient of variance to select the preferable project. CVA=..... CVB=......
5. There are three risky assets with rates of return r₁, 12, and r3, respectively. The covariance matrix and the expected rates of return are [0.4 0.2 0 = Σ 0.2 0.4 0.2 0 0.2 0.4 [0.04] 0.08 0.06 (a) Find the global minimum-variance portfolio. (b) For the required return z = 0.075, find (the weight of) the optimal portfolio with risky assets. For (c) and (d) only, assume there is an additional risk-free asset with return Tf 0.03. = (c) Find the tangent portfolio.
Analyze investment M and investment J using the below. Scenario Probability M Return J Return Strong .30 18% 20% Normal .30 15% 12% Weak .40 9% 5% 1. What is the range for M? 2. What is the average exp. return for M ? 3. What is the standard deviation* M? 3.85 (given) 4. What is the CV for M? 5. What is the range for J? 6. What is the average exp. return for J? 7. What is the standard deviation J? 6.22 (given) 8. What is the CV for J? 9. Which is the better choice?
a. Use the following information: E[rXOM] = 15.6%, standard deviationXOM = 15.9% E[rMS]=29.7%, standard deviationMS = 35.2% Correlation of returns: ρXOM,MS = 0.139, rf=10% If the optimal amount to invest in the first asset (w) is 0.43, what is the variance of the risky portfolio when w=0.43? (write in decimal format using 5 decimal places) b. When choosing the best point of the POS (the curved line connecting two possible assets you can invest in) you need to find the point that: 1.Has the greatest difference between it’s return and the risk free rate, thus leading to the best return 2. You must solve for the optimal y allocation in order to find the best point on the POS 3. The point with the lowest standard deviation 4. The point with the greatest Sharpe ratio
Alternatives A C D E alternatives have the following returns and standard deviations of returns. Alternatives A B C D E Returns: Expected Value $ 1,460 1,370 10,300 1,180 67,600 Coefficient of Variation Standard Deviation Calculate the coefficient of variation and rank the five alternatives from the lowest risk to the highest risk by using the coefficient of variation. (Round your answers to 3 decimal places.) Rank $ 780 1,490 9,100 1,060 21,500 1469 47 meld
Assume we live in a world where there exist only two risky assets and a risk-free asset with a return of 2%. You are given the following information: Risky Asset Market Cap E(r) В 02 (variance) A B ($Mil) 661 7.59% 0.9124 0.04 339 9.17% 1.1697. 0.09 OAB (covariance) 0.015 1) What would be the expected return on the market portfolio? (hint: how is the market portfolio weighted?) 2) What is the covariance between Risky Asset A and the market portfolio (i.c. σA,M)? (covariance "FOIL"...? Actually more than one way to solve for this) 3) What is the variance of the market portfolio? 4) What is the systematic risk component of Stock A's total variance? (hint: not systematic risk in terms of Beta, but systematic risk in terms of variance) Multiple Choice О 1) 0.0759 2) 0.04043 3) 0.03456 4) 0.04728 1) 0.0813 2) 0.04043 3) 0.03015

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