# Risk and Return and the Coefficient of Variation

1. Risk & Return and the CAPM.

Based on the following information, calculate the required return based on the CAPM:

Risk Free Rate = 3.5%

Market Return =10%

Beta = 1.08

2. Risk and Return, Coefficient of Variation

Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship.

Std Dev. Exp. Return

Company A 10.4 15.2

Company B 14.6 22.9

3. Risk and Return, Coefficient of Variation

Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship.

Std Dev. Exp. Return

Company A 7.4 13.2

Company B 11.6 18.9

4. Portfolio Theory Risk.

What is portfolio theory and why is it important to investing behavior? 250 words

5. Sources of Risk.

Identify sources of risk and contrast them (include examples) and explain why investors should be concerned with them 250 words

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practical financial management

1. Risk & Return and the CAPM.

Based on the following information, calculate the required return based on the CAPM:

Risk Free Rate = 3.5%

Market Return =10%

Beta = 1.08

ri = rRF + (rM - rRF)bi

where; ri is required return on the ith stock

rRF is risk-free rate of return

rM is required rate of return on a portfolio consisting of all stocks

bi is beta coefficient of the ith stock

(rM - rRF) = RPM

RPM is the risk premium on the market. It is the additional return over the risk-free rate required to compensate an average investor for assuming an average amount of risk.

ri = rRF + (RPM)bi

ri = 3.5% + (10%) (1.08)

ri = 14.3%

2. Risk and Return, Coefficient of Variation

Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship.

Std Dev. Exp. Return

Company A 10.4 15.2

Company B 14.6 22.9

Coefficient of variation (CV) =

Company A:

CV = 10.4 / 15.2 = 0.68421

Company B:

CV = 14.6 / 22.9 = 0.63755

Company A's CV is higher than company B's CV, so company A has the best investment.

3. Risk and Return, Coefficient of Variation

Based on the ...

#### Solution Summary

Risk and return and the coefficient of variations are examined.