Janet is a colleague of yours. She is considering investing in shares in the technology industry. Having
Question:
Janet is a colleague of yours. She is considering investing in shares in the technology industry.
Having researched some of the leading companies in this industry and having spoken to some industry experts, she has narrowed her preferences down to the shares of two companies, Flightsim (Pty) Ltd and Prosimulator Ltd.
Janet intends to invest in the shares of only one of the two companies.
Janet managed to obtain the following information for both companies and asked for your assistance to do risk analysis and come to an informed investment decision:
Information for Flightsim:
Information for Prosimulator:
• The expected return (R̄ p) = 19%.
• The standard deviation (σ) = 2.24.
• The coefficient of variation (CoV) = 0.12.
Required:
Show all calculations and round off answers to two decimals.
1. Use the information provided to calculate the expected return, standard deviation and coefficient of variation for Flightsim.
2. Explain to Janet which company will be the better investment, giving reasons for your answer.
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta