FIN 300 Lect notes 7 Risk Return problems FOR PDF - HOFFMAN 1 Builtrite is considering the following investment as an alternative to a one year Treasury

FIN 300 Lect notes 7 Risk Return problems FOR PDF - HOFFMAN...

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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 2.85%. 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? 3. Builtrite is looking at the following two projects with their corresponding Cash flows. Which project is the better investment?
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Unformatted text preview: $2,000 .10 $4,000 .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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