Characterizing Risk and Return questions

Respond to the questions and complete the problems.

Questions

In a Word document, respond to the following. Number your responses 1–3.

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  1. Define risk, and explain how it is measured.
  2. Identify a source of firm-specific risk. What is the source of market risk?
  3. Explain what the coefficient of variation measures.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

Problems

In either a Word document or Excel spreadsheet, complete the following problems.

  • You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
  • If you choose to solve the problems algebraically, be sure to show your computations.
  • If you use a financial calculator, show your input values.
  • If you use an Excel spreadsheet, show your input values and formulas.

In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.

  1. Two years ago, Conglomco stock ended at $73.02 per share. Last year, the stock paid a $0.34 per share dividend. Conglomco stock ended last year at $77.24. If you owned 200 shares of Conglomco stock, what were your dollar return and percent return last year?
  2. Calculate the coefficient of variation for the following three stocks. Then rank them by their level of total risk, from highest to lowest:
    • Conglomco has an average return of 11 percent and standard deviation of 24 percent.
    • Supercorp has an average return of 16 percent and standard deviation of 37 percent.
    • Megaorg has an average return of 10 percent and standard deviation of 29 percent.
  3. Year-to-date, Conglomco has earned a −1.64 percent return, Supercorp has earned a 5.69 percent return, and Megaorg has earned a 0.23 percent return. If your portfolio is made up of 40 percent Conglomco stock, 30 percent Supercorp stock, and 30 percent Megaorg stock, what is your portfolio return?

Characterizing Risk and Return Scoring Guide

CRITERIA NON-PERFORMANCE BASIC PROFICIENT DISTINGUISHED
Define the concept of risk. Does not define the concept of risk. Defines the concept of risk but omits key elements. Defines the concept of risk. Analyzes the concept of risk and connects the analysis to relevant real-world examples.
Explain how risk is measured. Does not explain how risk is measured. Explains how risk is measured but omits key elements. Explains how risk is measured. Analyzes how risk is measured and connects the analysis to relevant real-world examples.
Identify a source of firm-specific risk. Does not identify a source of firm-specific risk. Identifies a source of firm-specific risk but omits key elements. Identifies a source of firm-specific risk. Analyzes a source of firm-specific risk and connects the analysis to relevant real-world examples.
Identify the total level of risk of a stock. Does not identify the total level of risk of a stock. Identifies the total level of risk of a stock but omits key elements. Identifies the total level of risk of a stock. Analyzes the total level of risk of a stock and connects the analysis to relevant real-world examples.
Explain what the coefficient of variation measures. Does not explain what the coefficient of variation measures. Explains what the coefficient of variation measures using inaccurate or incomplete information. Explains what the coefficient of variation measures. Describes what the coefficient of variation measures and connects the description to relevant real world situations.
Calculate the dollar return on an investment. Does not calculate the dollar return on an investment. Calculates the dollar return on an investment using inaccurate or incomplete data. Calculates the dollar return on an investment. Calculates the dollar return on an investment and explains the calculation.
Calculate the percentage return on an investment. Does not calculate the percentage return on an investment. Calculates the percentage return on an investment using inaccurate or incomplete data. Calculates the percentage return on an investment. Calculates the percentage return on an investment and explains the calculation.
Calculate the coefficient of variation of stocks. Does not calculate the coefficient of variation of stocks. Calculates the coefficient of variation of stocks using inaccurate or incomplete data. Calculates the coefficient of variation of stocks. Calculates the coefficient of variation of stocks and explains the calculation.
Calculate the portfolio return. Does not calculate the portfolio return. Calculates the portfolio return using inaccurate or incomplete data.. Calculates the portfolio return. Calculates the portfolio return and explains the calculation.

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