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I/YR 11.06%
Since 11.06% > 10.0% Acceptable investment
D. . I/YR 7.0%
Since 7.0% < 10.0% Unacceptable investment
29. Holding period return (HPR) ?
If the investments are held beyond a year, the capital gain (loss) component would not be realized and would likely change. Assuming they are of equal risk, Investment Y would be preferred since it offers the higher return (16.0% for Y versus 11.67% for X).
43. (a) Investment A, with returns that vary widely?Xfrom 1% to 26%?Xappears to be more risky than Investment B, whose returns vary from 8% to 16%.
(b)
Investment A:
(1) (2) (3) (4)
Return Average (1) ?V (2) (3)2
Year r i Return, r ri ?V r (ri ?V r)2
2001 19% 12% 7% 49%
2002 1 12 ?V11 121
2003 10 12 ?V2 4
2004 26 12 14 196
2005 4 12 ?V8 64
434
Investment B:
(1) (2) (3) (4)
Year Return Average (1) ?V (2) (3)2
r i Return, r ri ?V r (ri ?V r)2
2001 8% 12% ?V4% 16%
2002 10 12 ?V2 4
2003 12 12 0 0
2004 14 12 2 4
2005 16 12 4 16
40
(c) Investment A, with a standard deviation of 10...
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