1a)Find the sample standard deviation for a security that has three one –year re
ID: 2750857 • Letter: 1
Question
1a)Find the sample standard deviation for a security that has three one –year returns of 5%, 10%, and 15%.
A) 10.00%
B) 4.08%
C) 3.16%
D) 5.00%
1b) Which of the following investment evaluation tools is considered to be the best capital budgeting decision tool?
A) Internal Rate of Return
B) Net Present Value
C) Payback Period
D) Modified Internal Rate of Return
1c).Which of the following type of firms are most likely to payout cash dividends?
A) large mature firms
B) rapidly growing firms
C) Firms encouraging innovation
D) Firms expanding their operations
Explanation / Answer
Answer:
1a) --- Correct Answer is B) 4.08%
Average Return = Sum of Given Return / No. of years = 30/3 = 10
Standard Deviation = [ Sum of (Average Return - Given Return)2 / n ]1/2 = (50 / 3)1/2 = (16.667)1/2 = 4.08%
1b) Correct Answer is B) Net Present Value
Net Present Value technique is considered Best Capital Budgeting decision tools for evaluating investment. It considered time value of money of cash inflows and cover all the life of project in order to evaluate investment proposal. that is the reason it is considered best method.
1c) The correct answer is B) rapidly growing firms ---- are most likely to payout cash dividends. Because of repidly growing firms want to grow and required to attract investor by giving high dividend..
Year Given Returns (%) Deviation Deviation2 Average Return - Given Return (Average Return - Given Return)2 1 5 10 - 5 = 5 25 2 10 10 - 10 = 0 0 3 15 10 - 15 = -5 25 30 50Related Questions
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