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Financial Management: Risk and Return

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1) Based on the following information calculate the holding period return:
P0 = $10.00
P1 = $12.00
D1 = $1.22

2) 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

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 10.4 15.2
Company B 14.6 22.9

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Solution Summary

There are 3 short answer type problems. Solution to first problem describes the steps to calculate the Holding Period Return in the given case. Solution to second problem depicts the methodology to calculate the required rate of return bu using CAPM Method. Solution to third problem calculates the coefficient of variation measure for the given companies.

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1)
Holding period return=(P1-Po+D1)/Po=(12-10+1.22)/10=32.20%

2)
Risk Free Rate =rf= 3.5%
Market Return=rm=10%
Beta = ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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