A portfolio management company plans to invest in common shares of a company specializing in the manufacture
Question:
A portfolio management company plans to invest in common shares of a company specializing in the manufacture of microcomputers. however, various performance are possible and are divided according to the following table, within a one-year period.
performance (%) 30 28.5 21 15 10 6
probability 0.06 0.20 0.35 0.24 0.10 0.05
a) Calculate the expected performance on such an investment.
b) Calculate the standard deviation and the coefficient of variation of this performance
c) A company could also invest in government bonds with a guaranteed performance of 14%. calculate the coefficient of variation.
(d) Which of the two investments presents the highest risk?
Fundamentals of corporate finance
ISBN: 978-0073382395
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan