Return and Risk (100 points) Complete the following problems: Problem #1: You are the investment consultant for a Saudi Arabian hospital to assess the risk for its future investments. There are three potential opportunities: Investing in Clinic A, or

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AppendixA_ReturnAndRisk.xlsx
Home>Applied Sciences homework help>Return and Risk (100 points) Complete the following problems: Problem #1: You are the investment consultant for a Saudi Arabian hospital to assess the risk for its future investments. There are three potential opportunities: Investing in Clinic A, or

Sheet1

Problem # 1
What is the expected return for each clinic?
Years Probability of Return Return for Clinic A Return for Clinic B Return for Clinic C E. R for Clinic A E.R for Clinic B E. R for Clinic C
1 0.10 5% 1% -10% 0.005 0.001 -0.01
2 0.20 6% 3% 0% 0.012 0.006 0
3 0.40 7% 4% 5% 0.028 0.016 0.02
4 0.20 8% 5% 15% 0.016 0.01 0.03
5 0.10 9% 10% 20% 0.009 0.01 0.02
Expected Return on Respective Clinics 0.07 0.043 0.06
Calculate the standard deviation of return for each clinic?
Years Probability of Return Return for Clinic A Return for Clinic B Return for Clinic C (Deviation from E.R for A )^2 (Deviation from E.R for B)^2 (Deviation from E.R for C)^2 Variance for A (Probability *square of deviation) Variance for B (Probability *square of deviation) Variance for C (Probability *square of deviation)
1 0.10 5% 1% -10% 0.0004 0.001089 0.0256 0.00004 0.0001089 0.00256
2 0.20 6% 3% 0% 0.0001 0.000169 0.0036 0.00002 0.0000338 0.00072
3 0.40 7% 4% 5% 0 0.000009 0.0001 0 0.0000036 0.00004
4 0.20 8% 5% 15% 0.0001 0.000049 0.0081 0.00002 0.0000098 0.00162
5 0.10 9% 10% 20% 0.0004 0.003249 0.0196 0.00004 0.0003249 0.00196
Variance of Respective Clinics 0.00012 0.000481 0.0069
Standard Deviation of Respective Clinics 0.0109544512 0.0219317122 0.0830662386
If the hospital is risk averse, which clinic would you recommend?
Comparison of Clinics
Clinic Expected Return Standard Deviation
A 0.07 0.0109544512
B 0.043 0.0219317122
C 0.06 0.0830662386
Problem # 2
The hospital invests in several Mutual Funds
Mutual Fund Beta Required Rate of Return
A 0.75 0.105
B 0.55 0.093
C 1.25 0.135
Risk-free rate 0.06
Market Rate 0.12
Calculate the required rate of return for each fund.
Required Rate of Return (Risk-free rate of return + Beta * (Market rate of return - Risk-free rate of return))
Problem #3:
Mutual Fund D is made up of the following stocks
Stock % of Portfolio Beta Expected Return Weighted Beta Portfolio’s Return
1 25% 0.75 0.17 0.1875 0.031875
2 35% 1 0.18 0.35 0.063
3 10% 0.9 0.22 0.09 0.0198
4 17% 1.45 0.16 0.2465 0.03944
5 13% 1.25 0.19 0.1625 0.030875
100% 1.0365
Portfolio's Return= 0.18499
Weighted Beta = Beta *the percent of overall portfolio.
Portfolio's Return= Weighted Beta * Expected Return
Problem #4:
You are provided with the following information about a portfolio
Column1 Column2
Risk-free-rate 0.05
Market Risk Premium 0.12
Beta 1.55
Required rate of return for portfolio 0.1585