Assessing return and risk Swift Manufacturing must choose between two asset purchases. The annual...

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Assessing return and risk Swift Manufacturing must choose between two asset purchases. The annual rate of return and the related probabilities given in the following table summarize the firm’s analysis to this point.

Project 257	Project 432
Rate of return	Probability	Rate of return	Probability
-10%	0.01	10%	0.05
10	0.04	15	0.10
20	0.05	20	0.10
30	0.10	25	0.15
40	0.15	30	0.20
45	0.30	35	0.15
50	0.15	40	0.10
60	0.10	45	0.10
70	0.05	50	0.05
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?

David · Accepted Answer

Assessing return and risk
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Assessing return and risk. Swift Manufacturing must choose between two asset purchases. The annual rate of return and the related probabilities given in the following table summarize the firm’s analysis to this point. Project 257 Project 432 Rate of return Probability Rate of return Probability -10% 0.01 10% 0.05 10 0.04 15 0.10 20 0.05 20 0.10 30 0.10 25 0.15 40 0.15 30 0.20 45 0.30 35 0.15 50 0.15 40 0.10 60 0.10 45 0.10 70 0.05 50 0.05 80 0.04 100 0.01 A) For each project, compute: (1) The range of possible rate of return. (2) The expected return. (3) The standard deviation of the returns. (4) The coefficient of variation. b) Construct a bar chart of each distribution of rates of return. c) Which project would you consider less risky? Why? 
1.
Range:  1.00 - (-.10) = 1.10
2.
Expected return:  
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Rate of Return
Probability
Weighted Value
Expected Return
ki
Pri
ki  x  Pri
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-.10
.01
-.001
.10
.04
.004
.20
.05
.010
.30
.

Assessing return and risk Swift Manufacturing must choose between two asset purchases. The annual rate of return and the related probabilities given in the following table summarize the firm’s...

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