14. 16.) Jean Shepherd is examining two new products his company may begin selli

Question

14. 16.)

Jean Shepherd is examining two new products his company may begin sellingFlick and Brunner. His ultimate decision will be based on choosing the product with the lowest risk. The following data is collected and presented below.

Standard Deviation

of Return

14.)

What is the coefficient of variation for Flick?

a. 0.454

b. 2.202

c. 0.016

d. 0.269

15.)

What is the coefficient of variation for Brunner?

a. 3.877

b. 0.016

c. 0.258

d. 0.317

16.)

If the firm wishes to minimize risk, which alternative do you recommend?

a. Flick

b. Brunner

17. 18.)

Assuming the rates of return associated with a given asset investment are normally distributed; the expected return is 25%; and the coefficient of variation is 0.32.

17.)

What is the standard deviation of returns?

a. 78.1%

b. 1.3%

c. 24.7%

d. 8.0%

18.)

What is the highest possible expected return associated with the 95% probability occurrence?

a. 33.0%

b. 41.0%

c. 23.8%

d. 7.6%

Standard Deviation

of Return

Explanation / Answer

14. a> coefficient of variation for Flick=8.4/18.5=0.454

15.c>coefficient of variation for Brunner=6.5/25.2=0.257

16.b>Brunner as the coefficient of variation is lower.

17.a>standard deviation =25/0.32=78.1

18.a> highest possible expected return associated=25*(1+0.7813/2)*0.95=33.0

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