FIN 300 Risk Return problems

FIN 300 Risk Return problems - HOFFMAN 1 FIN300 .1....

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HOFFMAN FIN 300 1.  Builtrite is considering the following investment as an alternative to a one year Treasury Bill which is currently paying 3.1%.  Calculate the expected value and standard deviation of the investment and comment on what you think Builtrite should do. Prob.        Return  .15 -1%  .30  2%  .40  3%  .15  8% 2. Builtrite is again considering an investment in one of the following stocks. Which stock would you consider to be the better investment? Stock A: Stock B: Prob.       Return Prob.       Return  .30  11%  .20  -5%  .40  15%  .30   6%  .30  19%  .30  14%  .20  22% 3. Builtrite is looking at the following two projects with their corresponding Cash flows.  Which project is the better investment? Project A: Project B: Prob. Cashflow Prob. Cashflow .20  $2,000 .10  $4,000
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Unformatted text preview: .50 $18,000 .30 $6,000 .30 $27,000 .40 $10,000 .20 $15,000 4. Builtrite stock has a beta of 1.2. The current risk-free rate is 6% and the overall market average return is 14%. Calculate the ‘fair rate of return’ for Builtrite stock and comment on why the rate is fair. 5. The average dollar profit for a Builtrite investment has been calculated at $130,000 with a standard deviation of $30,000. What is the probability of the next investment having a profit of greater than $175,000. What is the probability of the investment returning between $145,000 and $175,000? The CFO will get a bonus if the profit is in the top 15% of all investment profits, what is the dollar amount of that profit?...
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