$7/24/2018$ UNDERSTANDING HEALTHCARE FINANCLAL MANAGEMENT

Chapter $5-$ Financial Risk and Required Return

Minicase

Assume that you recently graduated and you just landed a job as a financlal planner with the Cleveland Clinic. Your first assignment is to invest $$100,000.$ Becaluse the fiunds are to be iavested at the ead of one year, you lave been instructed to plan for a one year holding period. Further, your boss has restricied you to the following investment alternatives, shown with their probabilities and associated euteomes.

$\backslash$table$[[\backslash$table$[[$State of$],[$Economy$]],$Probability,T$-$Balls,Alta Inds,Repo Men,$\backslash$table$[[$American$],[$Foam$]],\backslash$table$[[$Market$],[$Port$.]]],[$Recession$,0\mathrm{.}1,8\mathrm{.}00\%,22\mathrm{.}09\%,28\mathrm{.}09\%,10\mathrm{.}00,-13\mathrm{.}09\%],[$Below Aver,$0\mathrm{.}2,8\mathrm{.}009\%,2\mathrm{.}096,14\mathrm{.}79,10\mathrm{.}0\%,1\mathrm{.}046],[$Average$,0\mathrm{.}4,8\mathrm{.}004,,20\mathrm{.}9\%,0\mathrm{.}0\%{?}^b,7\mathrm{.}096,15\mathrm{.}09\%],[$Above Aver,$10\mathrm{.}2,8\mathrm{.}006,35\mathrm{.}00,10\mathrm{.}046,45\mathrm{.}046,29\mathrm{.}096],[$Boom$,0\mathrm{.}1,8\mathrm{.}00\%\%,50\mathrm{.}000,20\mathrm{.}0**\%,30\mathrm{.}004,43\mathrm{.}09\%]]$

Barney Smith Iwvestment Advisers rroratly issued estimates for the state of the economy and rhe rate of return on each state of the economy. Ala Industries, Inc, is an electronies frm: Repo Mra Iac, collecs past due debts: and American Foam manafoctures mattresses and vartoms ofher foam prodwets. Barmey Smath also matntains an "index fund" which owns a aarket welghted fraction of all gublicly fraded stocks; you can invest in that fund and thus obtain averape stork market results, Given the sifuation as seseribed, answer the following questions.

a$.$ Catcelate the eapected sate of roturn on each alternative.

b$.$ Calculate the slandard deviation of returns on earla allernative.

c$.$ Calculate she corflicient of varianion on each alternative.

d$.$ Calculate the bets on rach allerwalive, Men, Calrulate the experind relierB, Biandard deviation, everfieirnt of vartation, anit beta for thit portfulion. How does the risk of this two stock partfolio coppare will the rink of ime iadit ideat itnelke if they were bebd in instation?