*** Assignment MUST BE plagiarism-free and without using AI tools. The university uses AI detection tools ***
THIS ORDER IS A DISCUSSION POST THAT MUST HAVE TEXT + CALCULATIONS + CHARTS
Description
ABC Company has hired you to explain the criteria for assessing the performance of a security, specifically expected rate of return, standard deviation of rate of return, and coefficient of variation (CV). They also want you to show how, by forming a portfolio, an instrument can be generated that has properties better than each of its constituents in terms of the standard deviation of rate of return and CV. How would you explain and show this information to ABC Company?
Step-by-Step Guide to Complete the Discussion Post
1. Understand the Key Concepts:
a) Expected Rate of Return:
– Definition
– Formula
– Explanation
b) Standard Deviation of Rate of Return:
– Definition
– Formula
– Explanation
c) Coefficient of Variation (CV):
– Definition
– Formula
– Explanation
2. Explain the Criteria for Assessing Performance:
a) Expected Rate of Return
– Calculate the expected return using historical data or projected probabilities.
– Discuss the significance of having a higher expected return.
b) Standard Deviation of Rate of Return
– Calculate the standard deviation to understand the investment’s volatility.
– Explain why a lower standard deviation is preferable as it indicates lower risk.
c) Coefficient of Variation (CV)
– Calculate the CV to compare the risk per unit of return across different investments.
– Emphasize that a lower CV is indicative of a more favorable investment.
3. Forming a Portfolio:
a) Diversification
– Explain the concept of diversification and how it reduces risk.
– Show how combining different securities can lead to a portfolio with a lower standard deviation than the individual securities.
b) Portfolio Expected Return
– Calculate the expected return of the portfolio as the weighted average of the expected returns of the individual securities.
– Formula
– Explanation
c) Portfolio Standard Deviation
– Calculate the portfolio’s standard deviation considering the correlation between the securities.
– Formula
– Explanation
d) Portfolio CV
– Formula
– Explanation
– Calculate the portfolio CV to assess the overall risk-return trade-off.
4. Present the Information Clearly:
– Use visual aids like charts or graphs to illustrate the calculations and comparisons.
– Provide real-life examples or case studies to make the concepts relatable.
– Summarize the key points and their implications for ABC Company.
************** IMPORTANT: Only accept the order if you are able to write do it without using any AI tool. My professor is a AI expert and the University has a AI detector, so the text MUST BE 100% plagiarism and AI free! **********
