Finance Exam
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financial_assessment-2.docxRunning Head: FINANCIAL ASSESSMENT
FINANCIAL ASSESSMENT
FINANCIAL ASSESSMENT
Name of student
University
Date of submission
1).Google stock rate of return
Rate of return= (end price-initial price)/initial price
|
Google stock |
PRICE |
Amount of gain |
Rate of return |
|
Dec,5,2007 |
$698.51 |
($396.52) |
-56.77% |
|
Dec,5,2008 |
$301.99 |
|
|
2).Plaxo’s stocks
Rate of return= (end price-initial price + dividends)/initial price
|
Plaxo’s stocks |
|
Total return |
% rate of return |
|
initial share price |
9.45 |
3.64 |
38.52% |
|
ending share price |
11.66 |
|
|
|
dividends |
1.43 |
|
|
3).Caswell Investment
Rate of return= (end price-initial price)/initial price
|
Time |
Caswell |
Average rate of return |
geometric mean |
|
1 |
$12 |
0.00 |
1 |
|
2 |
9 |
-0.25 |
0.75 |
|
3 |
7 |
-0.22 |
0.78 |
|
4 |
6 |
-0.14 |
0.86 |
|
5 |
8 |
0.33 |
0.67 |
|
Arithmetic average rate of return |
-5.63% |
|
4.06 |
|
Geometric average rate of return |
32.34% |
|
|
The geometric mean is the one that best describes the annual rate of return since the investment returns are not independent of each other therefore the geometric means gives the most accurate measurement of the investments annual rate of return.
4).Expected returns and risk analysis
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SYNTAX |
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Common Stock A |
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|
|
|
|
Probability |
Return |
X-E[X] |
(X-E[X])^2 |
|
|
0.2 |
10% |
-5.8% |
0.003364 |
|
|
0.6 |
16% |
0.2% |
4E-06 |
|
|
0.2 |
21% |
5.2% |
0.002704 |
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|
|
|
|
|
|
Expected returns |
15.80% |
|
|
|
|
variance |
0.001216 |
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|
|
|
standard deviation |
0.034871192 |
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Common Stock B |
|
|
|
|
|
|
Probability |
Return |
X-E[X] |
(X-E[X])^2 |
|
|
0.1 |
-7% |
-15.50% |
2.40% |
|
|
0.4 |
5% |
-3.50% |
0.12% |
|
|
0.4 |
13% |
4.50% |
0.20% |
|
|
0.1 |
20% |
11.50% |
1.32% |
|
Expected returns |
8.50% |
|
|
|
|
variance |
0.005025 |
|
|
|
|
standard deviation |
0.070887234 |
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Based on risk analysis, common stock A is the better investment since it has a lower variance and standard deviation of 0.035 compared to that of stock B at 0.070.This implies that there is less uncertainty associated with returns from stock A which makes it less risky.
References
Khan, M. Y, and P. K Jain. Financial Management ; Text, Problems And Cases. 1st ed. New Delhi: Tata McGraw-Hill, 2004. Print.
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