As an MBA graduate who has studied strategic financial management, you are approached by a relative who
Question:
As an MBA graduate who has studied strategic financial management, you are approached by a relative who has recently come into a large inheritance and is looking to buy shares. Your relative is interested in two shares and provides you with the below information:
Share A:
In a boom period that has a 0.55 chance of happening the observed return on this share will be 25% and in a recession which has a 0.45 chance of happening the share exhibits an observed return of 7%.
Share B:
In a boom period that has a 0.55 chance of happening the observed return on this share will be 10% and in a recession which has a 0.45 chance of happening the share exhibits an observed return of 17%.
QUESTION:
Identify which investment choice would be best for your relative, who is risk averse, by calculating the expected returns and standard deviation for both shares.
Introduction to Data Mining
ISBN: 978-0321321367
1st edition
Authors: Pang Ning Tan, Michael Steinbach, Vipin Kumar