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## 8-1 Risk Return Trade Off The price of a stock today is

8-1 Risk-Return Trade-Off The price of a stock today is $33/share. In one year, the stock will be worth $28/share and give a $2/share dividend. What is the total return on the stock?

8-2b Measuring Stand-Alone Risk: The Standard Deviation Calculate the standard deviation for a stock given the information on three different economic scenarios: Probability of Outcome 0.3 Return in Given Outcome Recessiorn Average Boom -5% 8% 0.6 0.1 20%

8-2c Using Historical Data to Measure Risk Assuming investors require increased expected returns for taking higher levels of risk, fill in an appropriate answer or range of answers for investment #4 in the chart below: Investment Expected Return Expected Standard Deviation #1 #2 #3 #4 #5 0% 3% 8% ??? 60% 0% 2% 10% 2000 80%

8-2d Measuring Stand-Alone Risk: The Coefficient of Variation Would an investor rather have an investment with a coefficient of variation of 2 or 3, or would the investor be indifferent between the two choices? Explain your answer.

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8-1 Risk Return Trade Off The price of a stock today is

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