Risk and Return Problems and Solutions

Problem 1:

On the basis of expected Rate, Standard Deviation, Variance and Coefficient of variation decided which of the following company is best for investment (Single company Risk analysis).

risk and return



standard deviation

standard deviation formula

variance and standard deviation

On the basis of above mention risk indicators Company H is best.


Problem 2:

Following are the probability distribution of returns of portfolio of Stock A and Stock B in equal proportion of weight in each state of economy.  You are required to calculate Expected Return and Risk for individual Stocks?

return and risk calculation



expected rate of return

how to calculate standard deviation

Answer:  14.14

risk and return formula

Answer: 14.14


Problem 3:

If you deposit Rs. 1,000 in the bank at a nominal interest rate of 6 percent, you will have Rs. 1,060 at the end of the year. Suppose that the inflation rate during the year is also 6 percent. Find real amount in Rupees?


real rate of return

Answer: Rs. 1,000


Problem 4:

You save Rs. 100 and invest it at a nominal interest rate of 8%. Given the expected inflation is 5% per year, what is the real rate of return?


real rate of return formula

Answer: 2.87%


Problem 5:

Suppose the current market value of Rs. 100 and no dividend income after one year. Find expected Rate of Return?

expected rate of return




expected rate of return formula