Analyzing rick and return | Business & Finance homework help

Junior Sayou, a financial analyst for Chargers Products, a manufacturer of stadium
benches, must evaluate the risk and return of two assets, X and Y. The firm is considering
adding these assets to its 
diversified asset portfolio. To assess the return and risk
of each asset, Junior gathered data on the 
annual cash flow and beginning- and end-of year
values of each asset over the immediately preceding 10 years, 2000–2009. Junior’s investigation suggests that both assets, on average, will tend to perform in the future just as they have
during the past 10 years. He therefore believes that the expected annual return can be
estimated by finding the average annual return for each asset over the past 10 years.

Don't use plagiarized sources. Get Your Custom Essay on
Analyzing rick and return | Business & Finance homework help
Just from $13/Page
Order Essay

Return Data for Assets X and Y, 2000–2009

Asset X Asset Y
Value Value

Year Cash flow Beginning Ending Cash flow Beginning Ending
2000 $1,000 $20,000 $22,000 $1,500 $20,000 $20,000
2001 1,500 22,000 21,000 1,600 20,000 20,000
2002 1,400 21,000 24,000 1,700 20,000 21,000
2003 1,700 24,000 22,000 1,800 21,000 21,000
2004 1,900 22,000 23,000 1,900 21,000 22,000
2005 1,600 23,000 26,000 2,000 22,000 23,000
2006 1,700 26,000 25,000 2,100 23,000 23,000
2007 2,000 25,000 24,000 2,200 23,000 24,000
2008 2,100 24,000 27,000 2,300 24,000 25,000
2009 2,200 27,000 30,000 2,400 25,000 25,000
Junior believes that each asset’s risk can be assessed in two ways: in isolation and
as part of the firm’s diversified 
portfolio of assets. The risk of the assets in isolation
can be found by using the 
standard deviation and coefficient of variation of returns
over the past 10 years. The 
capital asset pricing model (CAPM) can be used to assess
the asset’s risk as part of the firm’s 
portfolio of assets. Applying some sophisticated
quantitative techniques, Junior estimated betas for assets X and Y of 1.60 and 1.10,
respectively. In addition, he found that the risk-free rate is currently 7% and that the
market return is 10%.
To Do
a. Calculate the annual 
rate of return for each asset in each of the 10 preceding
years, and use those values to find the average annual return for each asset over
the 10-year period.
b. Use the returns 
calculated in part a to find (1) the standard deviation and
(2) the coefficient of variation of the returns for each asset over the 10-year
period 2000–2009.
c. Use your 
findings in parts a and b to evaluate and discuss the return and risk
associated with each asset. Which asset appears to be preferable? Explain.
d. Use the CAPM to find the required return for each asset. Compare this value
with the 
average annual returns calculated in part a.
e. Compare and contrast your findings in parts c and d. What recommendations
would you give Junior with regard to 
investing in either of the two assets?
Explain to Junior why he is better off using beta rather than the standard 
and coefficient of variation to assess the risk of each asset

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more