BUS-FP3062 Assessment 7 – Characterizing Risk and Return

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  • Respond to three questions and solve three computational problems about the risk-and-return relationship.Every investment carries a different level of risk and return. It is useful to explore different measures of risk and learn how to compare risk with the return, as well as differentiate between standalone risk and portfolio, or market, risk.SHOW LESSBy successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
    • Competency 2: Define finance terminology and its application within the business environment.
      • Explain what the coefficient of variation measures.
      • Calculate the dollar return on an investment.
      • Calculate the percentage of return on an investment.
      • Calculate the coefficient of variation of stocks.
      • Explain how risk is measured.
    • Competency 3: Evaluate the financial health of an organization.
      • Identify the total level of risk of a stock.
      • Define the concept of risk.
      • Identify a source of firm-specific risk.
    Competency Map

    CHECK YOUR PROGRESSUse this online tool to track your performance and progress through your course.

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    Resources

    Suggested Resources

    The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.

    Library Resources

    The following e-books or articles from the Capella University Library are linked directly in this course:

    SHOW LESS

    Course Library Guide

    A Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the BUS-FP3062 – Fundamentals of Finance Library Guide to help direct your research.

    Bookstore Resources

    The resources listed below are relevant to the topics and assessments in this course and are not required. Unless noted otherwise, these materials are available for purchase from the Capella University Bookstore. When searching the bookstore, be sure to look for the Course ID with the specific –FP (FlexPath) course designation.

    • Cornett, M., Adair, T., & Nofsinger, J. (2019). M: Finance (4th ed.). New York, NY: McGraw-Hill. ISBN:9781259919633.
  • Assessment Instructions

    Respond to the questions and complete the problems.

    Questions

    In a Word document, respond to the following. Number your responses 1–3.

    1. Define risk, and explain how it is measured.
    2. Identify a source of firm-specific risk. What is the source of market risk?
    3. Explain what the coefficient of variation measures.

    Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

    Problems

    In either a Word document or Excel spreadsheet, complete the following problems.

    • You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
    • If you choose to solve the problems algebraically, be sure to show your computations.
    • If you use a financial calculator, show your input values.
    • If you use an Excel spreadsheet, show your input values and formulas.

    In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.

    1. Two years ago, Conglomco stock ended at $73.02 per share. Last year, the stock paid a $0.34 per share dividend. Conglomco stock ended last year at $77.24. If you owned 200 shares of Conglomco stock, what were your dollar return and percent return last year?
    2. Calculate the coefficient of variation for the following three stocks. Then rank them by their level of total risk, from highest to lowest:
      • Conglomco has an average return of 11 percent and standard deviation of 24 percent.
      • Supercorp has an average return of 16 percent and standard deviation of 37 percent.
      • Megaorg has an average return of 10 percent and standard deviation of 29 percent.
    3. Year-to-date, Conglomco has earned a −1.64 percent return, Supercorp has earned a 5.69 percent return, and Megaorg has earned a 0.23 percent return. If your portfolio is made up of 40 percent Conglomco stock, 30 percent Supercorp stock, and 30 percent Megaorg stock, what is your portfolio return?

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