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

 

Solution: 

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

 

Solution: 

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?

Solution: 

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?

Solution: 

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

 

 

Solution: 

expected rate of return formula

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