Question

Scenario 3 Enzed Industries (LO1b & 1e) Enzed Industries is considering two assets for investing. The probability distributions of expected returns for these two assets are shown in the table below. Asset X Asset Y Return r.(%) Return r.(%) 1 0.10 50 0.40 46 2 10 20 0.30 0.30 0.20 0.40 0. 20 0.10 2 0 14 5 Q3. Calculate the following for both assets and describe the degree of asset risk and return. a. Expected value of return (r) and state, which provides the highest, expected return. (3 marks) b. Standard deviation (0) and state which asset has the higher risk. (4 marks) c. Coefficient of variation (CV) and state which asset has the higher relative risk. (3 marks) (Total 10 marks)

Answer 1

Asset X 2 330 Return (X)ll 5 0 Xi Prebsbity G) 25D 2500 5 20 2 0.2 0 O4 80 400 20 0 2 l 10 0.) 360 12 Asset y 2 XiRex Prebabelety O4 2116 846-49 46 61 120 400 0 3 20 30 I00 O 3 9964 27 4 a) Eapeted 9re turn For asset X 12°), For arsit ye Asset Y prevides a 27 4/ haghea eapered netun E-ERSta de Vaiane b) Variance For asbet X - Std dler for Y- 360-122 2/ 360-144 4.6969 /4.70 For asset y996 4-27.4- 2456 Std der for y 1245.6 : Asset y has higher hisk z15.6729 IS 67

std dey c) loyfiuent f VAriation mean (expeutrd nutuns Fer asset X I4.70 1.225 12 0.572 27.4 Asset Xhas higher ative nisk