ced View - Saved to this PC- Search (Alt- ES Review View Help need to edit it's safer to stay in Protected View Enable Editing Returns on Portfolios 50% CPC 50% Morely Long Run State of the Economy Recession Below ave Average Above avg Boom Expected return Variance Std devintion Coef of var (CV) Prob. 0.10 0.20 0.40 0.20 0.10 Portfolio 40% CPC 60% EAT -15.00% -6.80 10:40 2240 3200 50% Morely 50% EAT 2.50% 4.00 8.00 9.50 9.50 7.10% 6.1 247% 0.35 8.98% 1971 14.04% 1.56 Questions 1. Calculate the expected rate of return for each of the financial assets listed in Table 1, and complete the expected return row for Table 1. Based solely on the expected returns, which of the investments appears the best and worst? Discuss the impact on returns for general changes in the economy for CPC, Morely, and EAT. 2. Considering U.S. Treasuries are guaranteed by the U.S. government, answer the following questions. a. Is the T-bill return independent of the state of the economy? Briefly explain. Do T-bills promise completely risk-free returns? Explain. b. Why do T-bond returns vary? Why are T-bond returns high when the market returns are low? c. How would returns on corporate bonds that Filmore Enterprises might issue compare with those for T-bonds? Would your answer be dependent on the potential bond rating of Filmore Enterprises? 5. Basing a decision solely on expected returns is appropriate only for risk-neutral individuals. Since most people are risk averse, risk is an important consideration for the decision. ced View - Saved to this PC- Search (Alt- ES Review View Help need to edit it's safer to stay in Protected View Enable Editing Returns on Portfolios 50% CPC 50% Morely Long Run State of the Economy Recession Below ave Average Above avg Boom Expected return Variance Std devintion Coef of var (CV) Prob. 0.10 0.20 0.40 0.20 0.10 Portfolio 40% CPC 60% EAT -15.00% -6.80 10:40 2240 3200 50% Morely 50% EAT 2.50% 4.00 8.00 9.50 9.50 7.10% 6.1 247% 0.35 8.98% 1971 14.04% 1.56 Questions 1. Calculate the expected rate of return for each of the financial assets listed in Table 1, and complete the expected return row for Table 1. Based solely on the expected returns, which of the investments appears the best and worst? Discuss the impact on returns for general changes in the economy for CPC, Morely, and EAT. 2. Considering U.S. Treasuries are guaranteed by the U.S. government, answer the following questions. a. Is the T-bill return independent of the state of the economy? Briefly explain. Do T-bills promise completely risk-free returns? Explain. b. Why do T-bond returns vary? Why are T-bond returns high when the market returns are low? c. How would returns on corporate bonds that Filmore Enterprises might issue compare with those for T-bonds? Would your answer be dependent on the potential bond rating of Filmore Enterprises? 5. Basing a decision solely on expected returns is appropriate only for risk-neutral individuals. Since most people are risk averse, risk is an important consideration for the decision