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Calculate the expected return for rus ltd

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Reference no: EM132783014

Vladimir is a new investor and has been closely watching a company by the name of RUS Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine. Vladimir believes the following returns are possible in 2020 and has attached a probability to each potential outcome:

Probability Possible Return

.20 230.00%

.30 100.00%

.30 5.00%

.20 -100.00%

a) Calculate the Expected Return for RUS Ltd. in 2020. Show formula, calculation and a concluding statement in your response.

b) Calculate the Risk (Standard Deviation) for RUS Ltd. in 2020. Show formula, calculation and a concluding statement in your response.

c) Vladimir hired an experienced stock analyst, who advised Vladimir that based on his advanced modelling, the expected return and standard deviation for RUS Ltd are at 8.10% and 48.75%, respectively. Using these new variables, detail the range of returns expected by investing in RUS Ltd. at the 68% (one standard deviation) and 95% (two standard deviations) confidence levels.

Show variables, calculation and a concluding statement in your response.

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

e) Do you consider RUS 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: EM132783014

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