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Lecturer Name: MR Moyo: Radreck U. Maenzanise 01182038512

The document contains a student's answers to questions regarding the calculation of expected returns, standard deviations, and coefficients of variation for two investments, A and B. The student calculates the expected return of A as 0.185 and B as 0.12. The standard deviations are calculated as 0.06 for A and 0.31 for B. The coefficients of variation are 0.32 for A and 2.58 for B. The student determines that a risk-averse investor would prefer investment A since it has lower risk.

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53 views4 pages

Lecturer Name: MR Moyo: Radreck U. Maenzanise 01182038512

The document contains a student's answers to questions regarding the calculation of expected returns, standard deviations, and coefficients of variation for two investments, A and B. The student calculates the expected return of A as 0.185 and B as 0.12. The standard deviations are calculated as 0.06 for A and 0.31 for B. The coefficients of variation are 0.32 for A and 2.58 for B. The student determines that a risk-averse investor would prefer investment A since it has lower risk.

Uploaded by

Morris Aloqroth
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

I

FACULTY OF COMMERCE

DEPARTMENT OF RISK MANAGEMENT,

INSURANCE & ACTUARIAL SCIENCES ENTERPRISE RISK MANAGEMNT (BRM 2101)

January- June 2020 SEMESTER I

LECTURER NAME: MR MOYO

STUDENT NAME STUDENT ID


 RADRECK U. MAENZANISE 01182038512

Submission Date: 03/07/2020


QUESTION 1

a. Calculate the expected return for A and B.

Probability Return A Return B Return A Return B


(Expected (Expected
value) Value)

0.3 25/100=0.25 16/100=0.16 0.25x0.3=0.075 0.16x0.3=0.048


0.4 20/100=0.2 12/100=0.12 0.2x0.4=0.08 0.12x0.4=0.048
0.3 10/100=0.1 8/100=0.08 0.1x0.3=0.03 0.3x0.08=0.024
Expected return 0.185 0.12

zb. Calculate the Standard deviation for A and B, giving your answer to 2 decimal places.

Return A Return B Return A Return B Probability


Deviation Deviation Components
(Variance) X- (Variance)X- EV
Outcome Outcome Return A Return B
EV
0.25-0.185 0.16-0.12= 0.04 0.065^2 0.04^2= 0.0016 0.3×0.004225 0.3x0.0016
= 0.004225 =0.0012675 =0.00048
=0.065

0.2-0.185 0.12-0.12= 0.00 0.015^2 0.00^2=0.00 0.4×0.000225 0.4x0.00


=0.000225 =0.00009 =0
= 0.015

0.1-0.185 0.08-0.12= -0.04 -0.085^2 0.04^2= 0.0016 0.3×0.007225 0.3x0.0016


=0.007225 =0.0021675 =0.00048
= -0.085

∑=0.003525 ∑=0.00096

CALCULATING STANDARD DEVIATION


Return A Return B

Square root of =√ 0.003525 squared root of =√ 0.00096

= 0.0593717104 = 0.309838668

= 0.06 =0.31

c. Calculate the coefficient of variation of investments A and B, giving your answer to 2

CALCULATING COEFFICIENT VARIATION

Coefficient Variation= Standard Deviation


Expected Value

Return A Return B

Coefficient Variation= 0.06 Coefficient Variation= 0.31


0.185 0.12
= 0.3243243243 =2.5833333333
=0.32 =2.58

d. Considering the answers, you got in c above, which investment would a risk adverse investor
prefer between the two and why?

I will choose investment B because it is because it has risk.

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