Assignment on Investment Analysis & Portfolio Management.
Added on -2020-02-24
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Investment Analysis &Portfolio ManagementSTUDENT ID:[Pick the date]
Investment Analysis & Portfolio ManagementA.In order to compute the expected returns, the expected selling price needs to be determinedbased on probabilistic outcomes highlighted.Expected selling price = 0.6*11 + (1-0.6)*12 = K11.4Dividend income during holding period = K2Buying price of the stock = K10Hence, expected holding period returns = [(11.4+2-10)/10]*100 = 34 %B.In order to compute the standard deviation of returns for the stock, the returns in case of both the possible prices need to be computed.Returns (Selling price = K11) = [(11+2-10)/10]*100 = 30%Returns (Selling price = K12) = [(12+2-10)/10]*100 = 40%Expected returns = 30*0.6 + 40*0.4 = 34% The standard deviation of the stock can be estimated using the following table (Damodaran, 2010).From the above, it is apparent that the standard deviation of the given stock is 24%C.Coefficient of Variation = Standard Deviation/Mean = 24/34 = 0.706It is apparent that the coefficient of variation is moderate to high as standard deviation standsat 70.6% of the mean value. This implies that the given stock would be termed as moderateto high risk considering the fluctuations in stock price (Brealey and Myers, 2007).
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