Your company wants to purchase a new network file server for its wide-area computer network. The…

Jimma University College of Business & Economics Department of Accounting & Finance J Ji im mm ma a U Un ni iv ve er rs si it ty y College of business and economics College of business and economics Department of accounting and Finance Department of accounting and Finance M M..S Sc c.. i in n A Ac cc co ou un nt ti in ng g a an nd d F Fi in na an nc ce e P Pr ro og gr ra am mm me e ACCT 612: Advanced Financial Management CHAPTER ASSIGNMENT CHAPTER TWO: RISK ANALYSIS AND MANAGEMENT Questions for Submission: All of them th Due Date: Friday 5 of April 2019 Instruction: Show all the necessary steps neatly in responding each of the questions presented hereunder! 1. Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.1 – 10% – 35% 0.2 2 0 0.4 12 20 0.2 20 25 0.1 38 45 a) Calculate the expected rate of return, ? , for Stock Y (? = 12%). y x b) Calculate the standard deviation of expected returns, s , for Stock X (s = 20.35%). x y c) Calculate the coefficient of variation for Stock Y. d) Is it possible that most investors will regard Stock Y as being less risky than Stock X? Explain. 2. Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Stock’s Beta Coefficient X 9% 15% 0.8 Y 10.75 15 1.2 Z 12.5 15 1.6 Fund Q has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) a) What is the market risk premium? b) What is the beta of Fund Q? c) What is the expected return of Fund Q? d) Would you expect the standard deviation of Fund Q to be less than 15%,…