Calculate the expected return for chn ltd

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Reference no: EM132907537

Xi is a new investor and has been closely watching a company by the name of CHN Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine.

Xi believes the following returns are possible in 2020 and has attached a probability to each potential outcome:

Probability      Possible Return
.05                       185.00%
.10                        83.50%
.55                         5.00%
.30                     -100.00%

Problem a) Calculate the Expected Return for CHN Ltd. in 2020.

Problem b) Calculate the Risk (Standard Deviation) for CHN Ltd. in 2020.

Problem c) Xi hired an experienced stock analyst, who advised Xi that based on his advanced modelling, the expected return and standard deviation for CHN Ltd are at 6.50% and 45.00%, respectively. Using these new variables, detail the range of returns expected by investing in CHN Ltd. at the 68% (one standard deviation) and 95% (two standard deviations) confidence levels.

Problem d) Xi is considering investing all his savings in buying shares in CHN Ltd. Explain to Xi why he should not by referring to the risk/return trade-off and what action Xi can take to reduce some of the risk.

Problem e) Do you consider CHN Ltd. to be a volatile and risky investment? Why or why not? Please calculate the Coefficient of Variation (CV) as part of your response.

Reference no: EM132907537

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