1.Given the following information, compute the standard deviation for Investment A:
|
Payoff
|
Probability
|
|
20%
|
0.5
|
|
10%
|
0.4
|
|
-10%
|
0.1
|
2.Based on the information given below, which of the investments would be considered best based on its risk and return relationship? Assume all investors are risk-averse and the investments will be held in isolation, not in a portfolio.
|
D
|
E
|
F
|
|
Expected return,
|
10.0%
|
18.0%
|
18.0%
|
|
Standard deviation,
|
7.0%
|
12.0%
|
20.0%
|
3.Consider the following information, and then calculate the required rate of return for the Scientific Investment Fund. The total investment in the fund is $2 million. The market required rate of return is 15 percent, and the risk-free rate is 7 percent.
|
Stock
|
Investment
|
Beta
|
|
A
|
$200,000
|
1.50
|
|
B
|
300,000
|
-0.50
|
|
C
|
500,000
|
1.25
|
|
D
|
1,000,000
|
0.75
|
4.Moerdyk Company's stock has a beta of 1.40, the risk-free rate is4.25%, and the market risk premium is5.50%.What is the firm's required rate of return?
5.Explain briefly: total risk, diversifiable risk and market risk and why are these concepts important?