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please solve all parts. thank you Junior Sayou, a financial analyst for Chargers Products, a manufacturer of stadium benches, must evaluate the risk and return
please solve all parts. thank you
Junior Sayou, a financial analyst for Chargers Products, a manufacturer of stadium benches, must evaluate the risk and return of two assets, X and Y. The firm is considering adding these assets to its diversified asset portfolio. To assess the return and risk of each asset, Junior gathered data on the annual cash flow and beginning and end-of year values of each asset over the immediately preceding 10 years, 2009-2018. These data are summarized in the table below. Junior's investigation suggests that both assets, on average, will tend to perform in the future just as they have during the past 10 years. He therefore believes that the expected annual return can be estimated by finding the average annual return for each asset over the past 10 years. Return Data for Assets X and Y, 2009 - 2018 Asset X Value Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Cash Flow $1,000 1,500 1,400 1,700 1,900 1,600 1,700 2,000 2.100 2,200 Beginning $20,000 22.000 21,000 24,000 22,000 23,000 26,000 25,000 24,000 27,000 End $22,000 21.000 24,000 22,000 23,000 26,000 25,000 24,000 27,000 30,000 Cash Flow $1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 Asset Y Value Beginning End $20,000 $20,000 20,000 20,000 20,000 21,000 21,000 21,000 21,000 22,000 22,000 23,000 23,000 23,000 23,000 24,000 24,000 25,000 25,000 25,000 Junior believes that each asset's risk can be assessed in two ways: in isolation and as part of the firm's diversified portfolio of assets. The risk of the assets in isolation can be found by using the standard deviation of returns over the past 10 years. The capital asset pricing model (CAPM) can be used to assess the asset's risk as part of the firm's portfolio of sets Applying some sophisticated quamtative techniques, Junior estimated betas for assets X and Y of 1 60 and 110, respectively. In addition, the found that the risk-free wie is currently 7% and that the market returm is 10% Your task: A Calculate the ammual rate of return for each asset in each of the 10 preceding years, and use these values to find the average annual return for cachet over the 10 year period B. Use the returns calculated in part A to find the standard deviation of the returns for each over the 10-year period 2009-2010 c. Use your findings in parts A and B to evaluate and discuss the return and risk associated with each asset. Which asset appears to be preferable? Explain. D. Use the CAPM to find the required return for each asset. Compare this value with the average annual returns calculated in part A. E. Compare and contrast your findings in parts and D. What recommendations would you give Junior with regard to testing in either of the two west Explain to Junior why he is better off using beta rather than the Mandard deviation to assess the risk of each asset. F. Rewek parts and under each of the following circumstances (1) A rise of 1% in inflationary expectations causes the risk-free rate to rise to 8% and the market return to rise to 11%. Explain. (2) As a result of favorable political events, investors suddenly become less risk averse causing the market return to drop by 1% to 9%. Explain. G. Junior believes that perhaps creating a portfolio consisting of assets X and Y would be beneficial. The weight of each asset in the portfolio would be 50%. Calculate the expected return and risk of portfolio XY and comment on your findingsStep by Step Solution
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