1. Calculate the expected rate of return on each alternative, and fill in the blanks on the row for r^{^} in the previous table.
2. You should recognize that basing a decision solely on expected returns is appropriate only for risk-neutral individuals. Because your client, like most people, is risk-averse, the riskiness of each alternative is an important aspect of the decision. One possible measure of risk is the standard deviation of returns.
   1. Calculate this value for each alternative and fill in the blank on the row for in the table.
   2. What type of risk is measured by the standard deviation?
   3. Draw a graph that shows roughly the shape of the probability distributions for High Tech, U.S. Rubber, and T-bills.
3. Suppose you suddenly remembered that the coefficient of variation (CV) is generally regarded as being a better measure of stand-alone risk than the standard deviation when the alternatives being considered have widely differing expected returns. Calculate the missing CVs, and fill in the blanks on the row for CV in the table. Does the CV produce the same risk rankings as the standard deviation? Explain.
4. Someone mentioned that you might also want to calculate the Sharpe ratio as a measure of stand-alone risk. Calculate the missing ratios and fill in the blanks on the row for the Sharpe ratio in the table. Briefly explain what the Sharpe ratio actually measures.
5. Suppose you created a two-stock portfolio by investing $50,000 in High Tech and $50,000 in Collections.
   1. Calculate the expected return (r^{^}p), the standard deviation (_p) the coefficient of variation (CV_p), and the Sharpe ratio for this portfolio, and fill in the appropriate blanks in the table.
   2. How does the riskiness of this two-stock portfolio compare with the riskiness of the individual stocks if they were held in isolation?

RISK AND RETURN Assume that you recently graduated with a major in finance. You just landed a job as a financial planner with Merrill Finch Inc., a large financial services corporation. Your first assignment is to invest $100,000 for a client. Because the funds are to be invested in a business at the end of 1 year, you have been instructed to plan for a 1-year holding period. Further, your boss has restricted you to the investment alternatives in the following table, shown with their probabilities and associated outcomes. (For now, disregard the items at the bottom of the data; you will fill in the blanks later.) Note: The estimated returns of U.S. Rubber do not always move in the same direction as the overall economy. For example, when the economy is below average, consumers purchase fewer tires than they would if the economy was stronger. However, if the economy is in a flat-out recession, a large number of consumers who were planning to purchase a new car may choose to wait and instead purchase new tires for the car they currently own. Under these circumstances, we would expect U.S. Rubber's stock price to be higher if there is a recession than if the economy is just below average. RISK AND RETURN Assume that you recently graduated with a major in finance. You just landed a job as a financial planner with Merrill Finch Inc., a large financial services corporation. Your first assignment is to invest $100,000 for a client. Because the funds are to be invested in a business at the end of 1 year, you have been instructed to plan for a 1-year holding period. Further, your boss has restricted you to the investment alternatives in the following table, shown with their probabilities and associated outcomes. (For now, disregard the items at the bottom of the data; you will fill in the blanks later.) Note: The estimated returns of U.S. Rubber do not always move in the same direction as the overall economy. For example, when the economy is below average, consumers purchase fewer tires than they would if the economy was stronger. However, if the economy is in a flat-out recession, a large number of consumers who were planning to purchase a new car may choose to wait and instead purchase new tires for the car they currently own. Under these circumstances, we would expect U.S. Rubber's stock price to be higher if there is a recession than if the economy is just below average