Question
Sun Products Inc. must choose between two asset purchases. The annual rate of return and related probabilities given below summarize the firm analysis. Asset A
Sun Products Inc. must choose between two asset purchases. The annual rate of return and related probabilities given below summarize the firm analysis.
Asset A Asset B
Rate of Return Probability Rate of Return Probability
8% 20% 7% 20%
13% 60% 17% 60%
18% 20% 27% 20%
Required:
a.Calculate the best estimate of each asset: Asset A ______ Asset B _____
b. Calculate the standard deviation of each asset: Asset A ______ Asset B _____
c.Calculate the coefficient of variation of each asset: Asset A ______ Asset B _____
and comment on the relative risk of Asset A and Asset B. If Sun is risk averse, which asset does its management choose? ____________
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