Your client is considering investment in one of the 2 assets: Stock A, and Stock B....
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Your client is considering investment in one of the 2 assets: Stock A, and Stock B. Probability distribution of returns on Stock A and B are given in the following table. You may assume that the risk-free interest rate is 5% per annum. State Probability Stock A Stock B 1 20% 10% 50% 2 30% 15% 25% 3 30% 20% 15% 4 20% 25% -20% a) On the basis of excess returns per unit of risk, which stock would you recommend to your client? (1 mark) b) Calculate skewness and kurtosis for the stocks. On the basis of skewness, which stock would you recommend to your client? (2 marks) Your client is considering investment in one of the 2 assets: Stock A, and Stock B. Probability distribution of returns on Stock A and B are given in the following table. You may assume that the risk-free interest rate is 5% per annum. State Probability Stock A Stock B 1 20% 10% 50% 2 30% 15% 25% 3 30% 20% 15% 4 20% 25% -20% a) On the basis of excess returns per unit of risk, which stock would you recommend to your client? (1 mark) b) Calculate skewness and kurtosis for the stocks. On the basis of skewness, which stock would you recommend to your client? (2 marks)
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Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
Posted Date:
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