loader  Loading... Please wait...

Question(s) / Instruction(s):

All work must be shown on an excel spreadsheet (2007 version).


MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Please provide any back-up of your calculations on a separate sheet of paper so that partial credit can be assigned, an Excel spreadsheet.

(10 points)

18. Haywood Industries, has prepared the following information regarding two investments under consideration. Which investment should be accepted?

Common Stock A


Common Stock B


Probability

Return

Probability

Return

0.20

2%

0.10

4%

0.50

18

0.30

6

0.30

27

0.40

10



0.20

15

A. Investment A is better. It has a higher expected return with less risk.

B. We cannot say which investment is “better”. It would depend on the investors attitude toward the risk-return trade-off.

C. Investment B is better. It has a higher expected return with less risk.

D. Investment A is better because a lower return means lower risk.

19. Given the holding-period returns shown here, compute the average returns and the standard deviation for Supply Chain Inc. and Wholesale Importers, Inc.

Month

Supply Chain Inc.

Wholesale Importers

1

6%

4%

2

3

2

3

-1

1

4

-3

-2

5

5

2

6

0

2

A. Supply Chain Inc. returns: 20.5%, 3.4, 8.00, 25.5, 12.07, 3.45 and 4.85% standard deviation.

Wholesale Importers returns: 7.89%, .38, .38, 14.35, .56, .79 and 2.45% standard deviation.

B. Supply Chain Inc. returns: 18.75%, 1.77, 7.13, 21.81, 11.09, 2.79 and 3.56% standard deviation.

Wholesale Importers returns: 6.25%, .25, .25, 12.25, .25, .25 and 1.97% standard deviation.

C. Supply Chain Inc. returns: 19.55%, 2.67, 7.55, 23.61, 10.39, 4.79 and 1.56% standard deviation.

Wholesale Importers returns: 4.25%, 1.25, 1.25, 10.35, 1.25, 1.25 and 2.97% standard deviation.

D. Supply Chain Inc. returns: 18.55%, 1.67, 7.15, 20.45, 11.99, 5.19 and 2.66% standard deviation.

Wholesale Importers returns: 6.25%, .35, 2.25, 8.25, 1.25, 1.48 and 4.78% standard deviation.

20. The Oak Grove Corporation is considering two mutually exclusive projects. Both require an initial outlay of $10,000 and will operate for 5 years. Project A will produce expected cash flows of $5,000 per year for years 1 through 5, whereas Project B will produce expected cash flows of $6,000 per year for years 1 through 5. Because project B is the riskier of the two projects, the management of Oak Grove Corporation has decided to apply a required rate of return of 15 percent to its evaluation but only a 12 percent required rate of return to project A. Determine each projects risk adjusted net present value.

A. Project A $9,154 and Project B $12,367.

B. Project A $8,950 and Project B $11,876.

C. Project A $8,025 and Project B $10,112.

D. Project A $7,659 and Project B $13,267.

 

Find Similar Answers by Subject


Student Reviews

Rate and review your solution! (Please rate on a Scale of 1 - 5. Top Rating is 5.)


Expert's Answer
Download Solution:
$33.75

This solution includes:

  • Plain text
  • Cited sources when necessary
  • Attached file(s)
  • Solution Document(s)



Reach Us

408-538-8534

20-3582-4059

39-008-4233

+1-408-904-6494