RiskReturnProblems

# RiskReturnProblems - As a financial analyst for CKC...

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Summary Measures Economic State Probability Return Recession 15% -2% 0.01932 Normal Growth 65% 12% 0.00000 Prosperity 20% 22% 0.01020 Expected Return 11.90% Variance 0.00494 Standard Deviation 7.03% As a financial analyst for CKC Corporation, you have provided a forecast (as demonstrated below) of the economy and the performance of your company in the economy. Use this information to illustrate the expected rate of return and the risk as measured by the standard deviation of those returns. (r - E( r )) 2

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Summary Measures Formula mean variance standard deviation E(r) = Σ p i* r i σ 2 = Σ p i* (r i -E(r)) 2 σ = 2 29 1/2
321730aa35ef399d601aa822c59b246218e657e1.xlsx Period 1 18% 19% 0% 16.30% 7.47% 16.30% 2 14% 12% 10% 16.29% 6.75% 16.29% 3 13% 26% 20% 16.28% 6.04% 16.28% 4 14% 14% 30% 16.27% 5.33% 16.27% 5 15% 6% 40% 16.26% 4.65% 16.26% 6 17% 8% 50% 16.25% 3.99% 16.25% 7 19% 28% 60% 16.24% 3.37% 16.24% 8 18% 12% 70% 16.23% 2.81% 16.23% 9 18% 15% 80% 16.22% 2.37% 16.22% 10 16% 23% 90% 16.21% 2.10% 16.21% mean 16.20% 16.30% 100% 16.20% 2.10% 16.20% Std. Dev. 2.10% 7.47% Variance 0.00044 0.00558 Correlation 0.11 Covariance 0 You have decided to create a portfolio that includes only two assets, Mars, Inc. common stock and JVC Common stock. Before making your investment, you would

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## This note was uploaded on 10/16/2010 for the course B&E FIN 500 taught by Professor Speaker during the Spring '10 term at WVU.

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RiskReturnProblems - As a financial analyst for CKC...

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