Which asset would a prudent financial manager recommend for a client who is financially conservative and seeking a steady, reliable investment income from their $65,000 portfolio? (See below.) Asset Initial investment Annual rate of return Pessimistic Most likely Optimistic A B $65,000 $65.000 10% 12% 16% 5% 10% 15% C $65,000 8% 10% 12% A) Asset A B) Asset B C) Asset C D) Cannot be determined from information given
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40. Which asset would a prudent
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- How I resolve this problems please give me the detail A firm has the following investment alternatives: Year A B C 1 $400 $--- $---- 2 400 400 ---- 3 400 800 ---- 4 400 800 1,800 Each investment cost of capital is 10 percent a. What is each investment's internal rate of return? b. Should the firm make any of theses investment? C. What is each investemtn's net present value? d. Should the firm make any of these investmentCourse: FinanceAs a great investor, you are interested in 3 assets to invest: A, B and C. A financial advisor tells you that the returns on the assets are independent of each other, and you are given the following data: Asset A B C E(Ri) 0.05 0.035 0.06 Variance 0.0015 0 0.008 You have not yet analyzed what your degree of risk aversion (A) is, but you know that your utility function behaves as follows: U[ E(Rp)] = E(Rp) - 0.5 * A * Variance. (See attached image for a better understanding) You are asked to:(a) Find the optimal portfolio with these 3 assets {called wA, wB and wC}.b) Calculate the expected return and risk of the optimal portfolio for the following degrees of risk aversion (A):(i) A = 5(ii) A = 10(iii) A = 16 Please ASAPAssume the market has the following assets: Asset Expected Return (%) Standard Deviation (%) X 18% 10% Y 14% 8% Z 10% 12% Jayaraman is considering to invest in only ONE (1) asset from the list above. Explain his choice if he is (i) risk averse (ii) risk neutral (iii) risk seeking
- Question #2: Asset Allocation Suppose an investor has a choice between two assets: Janus Balanced Mutual Fund (a risky asset) and 30- day treasury bills (a risk-free asset). Investment Expected Return Standard Deviation (6) Portfolio Weight [E(r)] Janus Balanced Fund 8.58% 8.67% 30 day T-bill 0.26% 1-y (a) Calculate the expected return and standard deviation of the overall portfolio---a portfolio consisting of a mixture of the risky asset and risk-free asset. [Hint: Your answers will be expressed as a function of y] (b) Use your answer from Part (a) to draw the capital allocation line (CAL). Be sure to label your axes. Indicate the portfolio that consists only of the risk-free asset on your CAL as Point "A". Indicate the portfolio that consists only of the risky asset on your CAL as Point "B". (c) Calculate the slope of the Capital Allocation Line. (d) Suppose that the investor chooses a portfolio weight of y = 1.5. Find the expected return and standard deviation of the overall…Computing Present and Future Values Under Different Assumptions Determine the unknown variables in each of the four separate investment scenarios. Round the RATE to one percentage point (for example, enter 8.5 for 8.54444%). Round NPER, PV, and PMT to the nearest whole number. Use a negative sign only for an amount related to PMT. Investment 1 Investment 2 Investment 3 Investment 4 RATE Answer 7% 6% 1% NPER 10 Answer 4 24 PV $216,000 $9,000 Answer $21,600 PMT $(35,000) $(2,300) $(16,200) Answer TYPE End of period Beg. of period End of period Beg. of periodThese are true/false questions ____ 31. The normal selling price must be set high enough to cover all costs and expenses (fixed and variable) and provide a reasonable profit. ____ 32. Methods that ignore present value in capital investment analysis include the cash payback method. ____ 33. The rate of return on investment may be computed by multiplying investment turnover by the profit margin. ____ 34. The excess of divisional income from operations over a minimum amount of desired income from operations is termed the residual income. ____ 35. Responsibility accounting reports for profit centers are normally in the form of income statements.
- CH 3. #8 a An investment with an internal rate of return of 0.25 has the following cash flows: Time Cash flow 0 C0 1 +$8,000 2 +10,000 The value of C0 is___. b If the firm financed the investment in (a) with debt costing 0.25, the debt amortization table (using the funds generated by the investment to repay the loan) would be9. Consider the case of two financial assets and three market conditions (states). The table below gives the respective probability for each market condition and the return of each asset in each one of them. Market Conditions State Recession Normality Expansion Probability of state 10% 60% 30% Return of asset A -20% 20% 70% Return of asset B -10% 10% 35% a. Derive the expected returns and the standard deviation of returns for the two assets above. b. Consider the portfolio with 50% investment in each of the two assets above. Calculate the expected return and the standard deviation of the portfolio. c. Estimate the equation of the efficiency frontier.QUESTION 2 Exhibit 6.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA) = 25% E(RB) = 15% (σA) = 18% (σB) = 11% WA = 0.75 WB = 0.25 COVA,B = −0.0009 Refer to Exhibit 6.2. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( σ i ), covariance (COVi,j), and asset weight (Wi) are as shown above? a. 18.64% b. 22.5% c. 11% d. 13.65% e. 20.0%
- rome =16 MENT I You are considering investing in a project with the following possible outcomes: Probability of Investment Returns States Осcurrence Economic Boom 15% 16% Economic Growth 45% 12% Economic Decline 25% 5% Depression 15% -10% Calculate the standard deviation for this investment. Select one: O a. 6.46% O b. 8.21% O C. 10.07% O d. 11.17% O e. 11.63% bp 近The expected value and the standard deviation of returns for asset A is Asset A Possible Outcomes Probability Returns (%) 0.25 10 0.45 12 0.30 16 Pessimistic Most likely Optimistic OA. 12 percent and 2.3 percent OB. 12 percent and 4 percent O C. 12.7 percent and 4 percent O D. 12.7 percent and 2.3 percent . (See below.)Consider two investment opportunities A and B. Investment A: Expected return = 0.08, Standard deviation = 0.06 Investment B: Expected return = 0.24, Standard deviation = 0.08 Which investment would you choose A or B? Provide the rationale behind your decision. b. If company is selecting projects with the negative NPV, what impact this decision would have on the share price of the company c. While forecasting future sales, internal sales forecast is more appropriate or external sales forecast? d. Why are dividends the basis for the valuation of common stock? e. When the constant growth dividend valuation model is used to explain a stock's current price, the quantity (ke - g) represents the expected dividend yield. Is this statement right or wrong? Explain.