FIN 486 Expect Success/uophelp.com FIN 486 Expect Success/uophelp.com | Page 10

80 0.04 100 0.01
a. For each project, compute: (1) The range of possible rates of return.
(2) The expected return. (3) The standard deviation of the returns. (4)
The coefficient of variation of the returns.
b. Construct a bar chart of each distribution of rates of return. c.
Which project would you consider less risky? Why?
P8–13 Portfolio return and standard deviation Jamie Wong is
considering building an investment portfolio containing two stocks, L
and M. Stock L will represent 40% of the dollar value of the portfolio,
and stock M will account for the other 60%. The expected returns
over the next 6 years, 2015–2020, for each of these stocks are shown
in the following table.
Expected return
Year Stock L Stock M
2015 14% 20%
2016 14 18
2017 16 16
2018 17 14
2019 17 12
2020 19 10
a. Calculate the expected portfolio return, rp, for each of the 6 years.
b. Calculate the expected value of portfolio returns, , over the 6-year
period.
c. Calculate the standard deviation of expected portfolio returns, ,
over the 6-year period.