An index of Canadian common shares (Graded A+) - use as a guide only - 25987

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Question 1

 

An index of Canadian common shares generated the following rates of return over the past 4 years: 7.31%, 8.26%, 3.19%, 2.34%.

 

Calculate the arithmetic mean. Explain the term arithmetic mean. When is this calculation useful?

 

Calculate the geometric mean. Explain the term geometric mean. When is this calculation useful?

 

Question 2

 

Cross Country Camping and Hiking Company has two alternatives for an expansion. Alternative A has an expected return of 18% with a standard deviation of 6. Alternative B has an expected return of 17% and a standard deviation of 6.5.

Calculate the coefficient of variation for each of the alternatives.

When is the coefficient of variation a useful measure in assessing two or more alternatives?

Question 3

 

Sharon Smith’s portfolio contains three different financial assets. Common stock of Cornwallis Hotel Company represents 23% of the value of the portfolio; Pizza Company represents 42%; and Seaman’s Beverages represents the remaining 35%. The beta of Cornwallis Hotel is 1.2.  Pizza Company has a beta of 1.9 and the beta of Seaman’s Beverages is -.6.

 

Calculate the beta for Sharon’s portfolio.

 

Explain why it may be beneficial to an investor to own a variety of investments rather than using your money to invest in only one financial asset.

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 4

 

Mark Simonsen Limited (MSL) has had three investments for the past 4 years. The controller requires your assistance and advice on these projects. Returns for the past 4 years have been:

 

 

 

 

Expected Return

Year

Grady

Corporation

Handy

Corporation

Cookies R Us

Corporation

1

10%

19%

11%

2

13%

22%

16%

3

17%

18%

18%

4

21%

13%

21%

 

Calculate the range of returns for each of the investments.

Based on the range, which of the three investments seems to have the lowest risk?

 

Calculate the arithmetic mean for each of the investments?

 

Calculate the standard deviation for each of the three investments using the arithmetic return. Which investment appears to have the highest risk?

 

 

Calculate the coefficient of variation for each investment. Which invest appears to have the lowest risk?

Solution Description

A+++++++++

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