RISK AND RETURN PROBLEM SOLUTION (***** 100% Correct With Calculation *****)
Unit 4 assignment 1:
Answer the following questions and complete the following problems, as applicable:
You may solve the following problems algebraically, or you may use a financial calculator or Excel spreadsheet. If you choose to solve the problems algebraically, be sure to show your computations. If you use a financial calculator, show your input values. If you use an Excel spreadsheet, show your input values and formulas.
Note: In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
1. How do Cornett, Adair, and Nofsinger define risk in the M: Finance textbook and how is it measured?
2. “What is the source of firm-specific risk? What is the source of market risk” (Cornett, Adair, & Nofsinger, 2014, p. 225)?
3. “What does the coefficient of variation measure” (Cornett, Adair, & Nofsinger, 2014)?
4. “FedEx Corp stock ended the previous year at $103.39 per share. It paid a $0.35 per share dividend last year. It ended last year at $106.69. If you owned 300 shares of FedEx, what was your dollar return and percent return” (Cornett, Adair, & Nofsinger, 2014, p. 226)?
5. “Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 12 percent and standard deviation of 25 percent. The average return and standard deviation of Idol Staff are 15 percent and 35 percent; and of Poker-R-Us are 9 percent and 20 percent” (Cornett, Adair, & Nofsinger, 2014, p. 226).
6. “Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 12 percent and standard deviation of 25 percent. The average return and standard deviation of Idol Staff are 15 percent and 35 percent; and of Poker-R-Us are 9 percent and 20 percent” (Cornett, Adair, & Nofsinger, 2014, p. 226).
o Before solving this problem, calculate the coefficient of variation.
7. “Year-to-date, Oracle had earned a −1.34 percent return. During the same time period, Valero Energy earned 7.96 percent and McDonald’s earned 0.88 percent. If you have a portfolio made up of 30 percent Oracle, 20 percent Valero Energy, and 50 percent McDonald’s, what is your portfolio return” (Cornett, Adair, & Nofsinger, 2014)?
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