Question

Identify the difference in the risks, returns, advantages, and disadvantages associated with the following investment alternatives:

For an investor who has a one-year time horizon, purchasing a treasury security that matures in one year versus purchasing a treasury security that matures in 30 years.

Answer #1

The return of one year investor will be lower than investor who invests for 30 years.

The risk associated will be lower for one year investor rather than investor who invests for 30 years.

Advantages of one year horizon is that if interest increases then he can reinvest it after one year.

Further the disadvantage will be if interest rate falls then he will have to invest it at lower amount.

For 30 years investors advantage is that even if interest rate will fall he will not be affected by it.

Disadvantages- if the interest rate will rise then he will not be able to reinvest it at higher rate.

Given the following alternatives and cash flows:
Alternative #1 has an investment of $25,000 and an annual income of
$6,000/year for eight years.
Alternative #2 has an investment of $35,000 and an annual income of
$12,500/year for four years
If MARR = 12% What is the the difference in present worth
AW2 - AW1 assuming repeatability?
-$1,631
$9
$1,631
-$1,839

Problem 6:
You have an investment horizon of 10 years. Which of the
following has more interest rate risk?
(1) Invest in a 12-year zero and sell it after 10 years.
(2) invest in a 10-year sequence of 1-year zeros (when one
1-year zero matures, roll the money over into the next one-year
zero, for 10 years).
Explain your answer.

1. Jerome is considering investing $10,000 in a security that
has the following distribution of
possible one-year returns:
Probability of
Occurrence 0.10 0.20 0.30 0.30 0.10
Possible
Return -10% 0% 10% 20% 30%
a) What is the expected return in % associated with the
investment?
b) Calculate the expected return in DOLLAR AMOUNT for the
investment.
c) What is the standard deviation associated with the
investment?

You observe an investment that has the following historical
returns:
Year
Return
1
-4.66%
2
0.90%
3
10.81%
4
14.17%
5
15.33%
6
9.14%
7
-28.62%
8
12.76%
9
42.87%
10
-5.67%
What was the average (arithmetic mean) return over the 10 year
period?
What was the investment's variance over the 10 year period?
What was the investment's standard deviation over the 10 year
period?
Assuming the 10 years of return are normally distributed and
representative of future returns (big,...

E17.1 (LO 1, 2) (Investment Classifications) For the following
investments, identify whether they are:
1. Trading debt securities.
2. Available-for-sale debt securities.
3. Held-to-maturity debt securities.
4. None of the above.
Each case is independent of the other.
a. A bond that will mature in 4 years was bought 1 month ago
when the price dropped. As soon as the value increases, which is
expected next month, it will be sold.
b. 10% of the outstanding stock of Farm-Co was...

question 7
An investment earned the following returns for the years 2013
through 2016:15%, 5%, 30%, and 10%. What is the variance of returns
for this investment?
Select one:
a. 0.1541
b. 0.0892
c. 0.1747
d. 0.0323
e. 0.0117
question 8
Given the following information, what is the standard deviation
of stock A if it has an expected return of 33% in a boom economy,
an expected return of 18% in a good economy, and an expected return
of 2%...

Question 3
An investment earned the following returns for the years 2013
through 2016:20%, 50%, -30%, and 10%. What is the variance of
returns for this investment?
a. 0.0892
b. 0.2987
c. 0.1541
d. 0.1092
e. 0.0292
question 4
Al's Audio has a cost of debt of 7 percent, a cost of equity of
12 percent, and a cost of preferred stock of 8 percent. The weight
for debt is 0.16, the weight for preferred shares is 0.34, and the...

Holding period and annual? (investment) returns. Baker Baseball?
Cards, Inc. originally purchased the rookie card of? Hammerin' Hank
Aaron for $ 33.00. After holding the card for 4 years, Baker
Baseball Cards auctioned the card for $132.00. What are the holding
period return and the simple annual return on this? investment?
Investment
Original Cost
of Investment
Selling Price of Investment
Distributions
Received
Percent Return
+
+
??CD
? $500
?$540
?$0
??
??Stock
?$23
?$34
?$2
??
??Bond
?$1,040
?$980...

Question 1
The table below displays returns associated with a company's
shares over the last 15 years.
Year
Return
(% pa)
2004
19
2005
12
2006
17
2007
10
2008
32
Year
Return
(% pa)
2009
14
2010
4
2011
4
2012
30
2013
15
Year
Return
(% pa)
2014
26
2015
2
2016
10
2017
3
2018
28
Based on this historic data, calculate the expected return on
the shares and its standard deviation. Give your answers as a...

Time Value of Money I - Worksheet Identify the table that should
be used for each of the following situations in the space provided,
then show the calculations to solve the problem below. FV – Future
Value of 1 PV – Present Value of 1 FVA – Future Value of an Annuity
PVA – Present Value of an Annuity _________ 1. Tom bought a
zero-coupon bond with an 8% yield. (A zero-coupon bond does not pay
interest, but the value...

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