Question 4 [32]

You have to provide the company management team with a risk analysis for an investment project which they are considering. You have the following information at your disposal:

Required:

Show all calculations rounded off to two decimals.

4.1. Calculate the range of the returns for this investment and explain what the calculated range value means for the projects risk. (7)

4.2. Calculate the standard deviation of the returns for this investment and explain what the calculated standard deviation value means for the projects risk. (17)

4.3. Calculate the coefficient of variation of the returns for this investment and explain what the calculated coefficient of variation value means for the projects risk. (8)

Question 4 [32] You have to provide the company management team with a risk analysis for an investment project which they are considering. You have the following information at your disposal: Possible outcome scenarios Probability Expected return Pessimistic 21.00% 8.90% Most likely 44.00% 11.40% Optimistic 35.00% 14.60% Additional information: The overall expected return from the three scenarios combined is 12%. Required: Show all calculations rounded off to two decimals. 4.1. Calculate the range of the returns for this investment and explain what the calculated range value means for the project's risk. (7) 4.2. Calculate the standard deviation of the returns for this investment and explain what the calculated standard deviation value means for the project's risk. (17) 4.3 Calculate the coefficient of variation of the returns for this investment and explain what the calculated coefficient of variation value means for the project's risk. (8)