2010-07-14_000803_Expected_and_historical_rate_of_return -...

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1. (Expected Rate of Return and Risk) B. J. Orange Enterprises is evaluating a security. On Calculate the investment’s expected return and its standard deviation. Should Orange inves You should calculate the expected return, standard deviation, and coefficient of variation. Probability Return 0.15 6% 0.90% -2.900% 0.0841% 0.3 5% 1.50% -3.900% 0.1521% 0.4 11% 4.40% 2.100% 0.0441% 0.15 14% 2.10% 5.100% 0.2601% Average = 8.90% Variance = Standard deviation = Coefficient of variation = (standard deviation/ average) x 100 = 0.033897/8.90% 38.086% Treasury bills: Return = 1.90% Standard deviation = 1 Coefficient of variation = (1/1.9%) 52.63% Orange should not invest in Treasury bills as the coefficient of variation , which measures th case of treasury bill than as compared to investment in the other security. 2. (Historic Rate of Return and Risk) Consider an investment in one of two common stocks. which investment was better, based on risk (as measured by the standard deviation), return, a
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This note was uploaded on 06/20/2011 for the course ACCT 101 taught by Professor Joannes during the Spring '11 term at Aarhus Universitet.

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2010-07-14_000803_Expected_and_historical_rate_of_return -...

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