Telluride Tours is currently evaluating two mutually exclusive investments. After doing a scenario analysis and applying probabilities to each scenario, it has determined that the investments have the following distributions around the expected NPVS. Probability NPVA NPVB 10% -$39,780 --$14,918 20% -9,945 2,486 40% 19,890 19,890 20% 49,725 37,294 10% 79,560 54,698 Several members of the management team have suggested that Project A should be selected because it has a higher potential NPV. Other members have suggested that Project B appears to be more conservative and should be selected. They have asked you to resolve this question. а. Calculate the expected NPV for both projects. Can the question be resolved with this information alone? b. Calculate the variance and standard deviation of the NPVS for both projects. Which project appears to be riskier?

Telluride Tours is currently evaluating two mutually exclusive investments. After doing a scenario analysis and applying probabilities to each scenario, it has determined that the investments have the following distributions around the expected NPVS. Probability NPVA NPVB 10% -$39,780 --$14,918 20% -9,945 2,486 40% 19,890 19,890 20% 49,725 37,294 10% 79,560 54,698 Several members of the management team have suggested that Project A should be selected because it has a higher potential NPV. Other members have suggested that Project B appears to be more conservative and should be selected. They have asked you to resolve this question. а. Calculate the expected NPV for both projects. Can the question be resolved with this information alone? b. Calculate the variance and standard deviation of the NPVS for both projects. Which project appears to be riskier?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₁) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Asset (B) E(R₂) = 15% SDB = 9.5% WB = 0.75
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(RA) = 25% SDA = 18% WA = 0.75 COVAB= -0.0009 Asset (B) E(R₂) = 15% SDB = 11% W₁ = 0.25
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75
Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below (Attached image). Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?
Two investments, X and Y, have the characteristics shown below. E(X) = $70, E(Y)3D$120, o =7,000, a = 14,000, and ory =7,500 If the weight of portfolio assets assigned to investment X is 0.3, compute the a. portfolio expected return and b. portfolio risk. a. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio expected retum is $ (Type an integer or a decimal.) b. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio risk is approximately $. (Round to two decimal places as needed.)
The expected return for Asset Y is 24%, and it has a standard deviation of 14%. The expected return for Asset Z is 14%, and it has a standard deviation of 9%. Which of the following is a CORRECT statement? Question 24 options: Asset Z is the riskier investment of the two investments. Asset Y is the riskier investment of the two investments.
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25
Asset W has an expected return of 13.4 percent and a beta of 1.6. If the risk-free rate is 5.0 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations and enter your expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 3 decimal places, e.g., 32.161.) Asset W has an expected return of 13.4 percent and a beta of 1.6. If the risk-free rate is 5.0 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations and enter your expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 3 decimal places, e.g., 32.161.)
Darren is considering the following investments; Alphabet, PayZero and FNQ Res.: Probability of return (%) Likely Return Alphabet (%) Likely Return PayZero (%) Likely Return FNQ Res. (%) 20 6 4 9 30 9 7 14 40 16 10 19 10 18 14 26 a) Calculate the expected return for each asset. b) Calculate the expected return on a portfolio comprising each asset weighted as follows Asset Weighting (%) Weighting (%) Alphabet 20 PayZero 55 FNQ Res. 25 c) Explain to Darren the benefit of combining the assets into a portfolio instead of undertaking individual investments in Alphabet, PayZero and FNQ Res. d) Calculate the risk attached to each of the investments proposed in Alphabet, PayZero and FNQ Res. Rank each investment in regard to its risk and return. Discuss the likely range of returns that could eventuate for each asset with a 95% level of accuracy.
A two-asset portfolio has the following characteristics. The correlation coefficient between the returns of the two assets is +0.1. Asset Expected Return Expected Standard Deviation Weight A 12% 3% 0.8 B 20% 7% 0.2 Calculate the expected return and the risk (i.e. standard deviation) of this two-asset portfolio. Comment on the risk of this portfolio relative to the two individual assets. Suppose the correlation coefficient between A and B was -1.0. How can an investor obtain a zero risk portfolio consisting of A and B?
Darren is considering the following investments; Alphabet, PayZero and FNQ Res.: Probability of return (%) Likely Return Alphabet (%) Likely Return PayZero (%) Likely Return FNQ Res. (%) 20 6 4 9 30 9 7 14 40 16 10 19 10 18 14 26 a) Calculate the expected return for each asset.b) Calculate the expected return on a portfolio comprising each asset weighted as follows Asset Weighting (%) Weighting (%) Alphabet 20 PayZero 55 FNQ Res. 25 c) Explain to Darren the benefit of combining the assets into a portfolio instead of undertaking individual investments in Alphabet, PayZero and FNQ Res. d) Calculate the risk attached to each of the investments proposed in Alphabet, PayZero and FNQ Res. Rank each investment in regard to its risk and return. Discuss the likely range of returns that could eventuate for each asset with a 95% level of accuracy. ONLY ANSWER PART C AND D PLEASE
Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .

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