Author Question: Champion Breweries must choose between two asset purchases. The annual rate of return and related ... (Read 39 times)

kodithompson · **on:** Jul 10, 2018

Champion Breweries must choose between two asset purchases. The annual rate of return and related probabilities given below summarize the firm's analysis.

For each asset, compute
(a) the expected rate of return.
(b) the standard deviation of the expected return.
(c) the coefficient of variation of the return.
(d) Which asset should Champion select?

Question 2

The future value of 200 received today and deposited at 8 percent for three years is ________.

A) 248
B) 252
C) 158
D) 200

zenzy · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

(a)

Expected Return = 15 Expected Return = 15
(b) Asset A
0.30 = 7.5
0.40 = 0
0.30 = 7.5
15
Variance = 15
Standard Deviation of A = 3.87
Asset B
0.40 = 40
0.20 = 0
0.40 = 40
80
Standard Deviation of B = 8.94
(c) CVA = 3.87/15 = 0.26 CVB = 8.94/15 = 0.60
(d) Asset A; for 15 rate of return and lesser risk.

Answer to Question 2

B