Purchase Solution

# Corporate Investment Analysis

Not what you're looking for?

I need help to solve some problems from book Corporate Investment Analysis - in FINANCE. Book from: Reilly, F. & brown, K. (2009). Investment Analysis and Portfolio Management (9th ed.). Mason, OH: South-Western/ Cengage Learning. Book used by Strayer University.

I need help to solve those problems: 4, 5, and 6

Please check both attachments to answer problem # 6

4). During the past five years, you owned two stocks that had the following annual rates of return:

Year Stock T Stock B
1 0.19 0.08
2 0.08 0.03
3 - 0.12 - 0.09
4 - 0.03 0.02
5 0.15 0.04

a. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this measure?
b. Compute the standard deviation of the annual rate of return for each stock. (Use Chapter 1 Appendix if necessary.) By this measure, which is the preferable stock?
c. Compute the coefficient of variation for each stock. . (Use the Chapter 1 Appendix if necessary.) By this relative measure of risk, which stock is preferable?
d. Compute the geometric mean rate of return for each stock. Discuss the difference between the arithmetic mean return and the geometric mean return for each stock. Discuss the differences in the mean returns relative to the standard deviation of the return for each stock.

5). A stockbroker calls you and suggests that you invest in the Lauren Computer Company. After analyzing the firm's annual report and other material, you believe that the distribution of expected rates of return is as follows:

LAUREN COMPUTER CO.
Possible Rate of Return Probability
- 0.60 0.05
- 0.30 0.20
- 0.10 0.10
0.20 0.30
0.40 0.20
0.80 0.15

Compute the expected return [ E (Ri) ] on Lauren Computer stock.

6). Without any formal computations, do you consider Madison Beer in Problem 3 or Lauren Computer in Problem 5 to present greater risk? Discuss your reasoning.

##### Solution Summary

This solution is comprised of a detailed explanation to compute the arithmetic mean annual rate of return for each stock.

##### Solution Preview

4). During the past five years, you owned two stocks that had the following annual rates of return:

Year Stock T Stock B
1 0.19 0.08
2 0.08 0.03
3 - 0.12 - 0.09
4 - 0.03 0.02
5 0.15 0.04

a. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this measure?

Arithmetic mean annual rate of return = Total sum/No. of year

Stock T

Arithmetic mean annual rate of return = (0.19 + 0.08 - 0.12 - 0.03 + 0.15)/5 = 0.054 or 5.4%

Stock B

Arithmetic mean annual rate of return = (0.08 + 0.03 - 0.09 + 0.02 + 0.04)/5 = 0.016 or 1.6%

By this measure, Stock T is most desirable because it has higher arithmetic mean annual rate of return.

b. Compute the standard deviation of the annual rate of return for each stock. (Use Chapter 1 Appendix if necessary.) By this measure, which is the preferable stock?

Variance = &#425;p(r - µ)2 Standard deviation = &#8730;Variance

Stock T

Variance = ...

##### SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

##### Motivation

This tests some key elements of major motivation theories.

##### Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

##### Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking