Characterizing Risk and Return

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8/6/2018 Assessment 7 – BUS-FP3062 - Summer 2018 - Section 01 Assessment 7 Characterizing Risk and Return Details Attempt 1 Available Tutorials Support Attempt 2 Log Out Felicia Smith Attempt 3 Overview 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. By 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 Use this online tool to track your performance and progress through your course. CHECK YOUR PROGRESS SHOW LESS  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: Weaver, S. C., & Weston, J. F. (2001). Finance and accounting for nonfinancial managers. New York, NY: McGraw-Hill. https://courserooma.capella.edu/webapps/blackboard/content/listContent.jsp?course_id=_121654_1&content_id=_6433823_1&mode=reset 1/3 8/6/2018 Assessment 7 – BUS-FP3062 - Summer 2018 - Section 01 Sherman, E. H. (2011). Finance and accounting for nonfinancial managers (3rd ed.). New York, NY: Tutorials Support Log Out Felicia Smith American Management Association. 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. (2016). M: Finance (3rd ed.). New York, NY: McGraw-Hill. SHOW LESS  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. https://courserooma.capella.edu/webapps/blackboard/content/listContent.jsp?course_id=_121654_1&content_id=_6433823_1&mode=reset 2/3 8/6/2018 Assessment 7 – BUS-FP3062 - Summer 2018 - Section 01 3. Year-to-date, Conglomco has earned a −1.64 percent return, Supercorp has earned a 5.69 percent Tutorials Log Out Felicia Smith return, and Megaorg has earned a 0.23 percent return.Support 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? Characterizing Risk and Return Scoring Guide Use the scoring guide to enhance your learning. VIEW SCORING GUIDE How to use the scoring guide SUBMIT ASSESSMENT This button will take you to the next available assessment attempt tab, where you will be able to submit your assessment. https://courserooma.capella.edu/webapps/blackboard/content/listContent.jsp?course_id=_121654_1&content_id=_6433823_1&mode=reset 3/3 8/6/2018 Characterizing Risk and Return Scoring Guide Characterizing Risk and Return Scoring Guide NONPERFORMANCE BASIC Define the concept of risk. Does not define the concept of risk. Defines the concept of risk Defines the but omits key elements. concept of risk. Explain how risk is measured. Does not Explains how risk is explain how risk measured but omits key is measured. elements. Explains how risk is measured. Analyzes how risk is measured and connects the analysis to relevant real-world examples. Identify a source of firm-specific risk. Does not identify a source of firmspecific risk. Identifies a source of firmspecific risk but omits key elements. Identifies a source of firm-specific risk. Analyzes a source of firmspecific risk and connects the analysis to relevant real-world examples. Identify the total level of risk of a stock. Does not identify the total level of risk of a stock. Identifies the total level of risk of a stock but omits key elements. Identifies the total level of risk of a stock. Analyzes the total level of risk of a stock and connects the analysis to relevant real-world examples. Explain what the coefficient of variation measures. Does not explain what the coefficient of variation measures. Explains what the coefficient of variation measures using inaccurate or incomplete information. Explains what the coefficient of variation measures. Describes what the coefficient of variation measures and connects the description to relevant real world situations. Calculate the dollar return on an investment. Does not calculate the dollar return on an investment. Calculates the dollar return on an investment using inaccurate or incomplete data. Calculates the dollar return on an investment. Calculates the dollar return on an investment and explains the calculation. Calculate the percentage return on an investment. Does not calculate the percentage return on an investment. Calculates the percentage return on an investment using inaccurate or incomplete data. Calculates the percentage return on an investment. Calculates the percentage return on an investment and explains the calculation. Calculate the coefficient of variation of stocks. Does not calculate the coefficient of variation of stocks. Calculates the coefficient of variation of stocks using inaccurate or incomplete data. Calculates Calculates the coefficient of the coefficient variation of stocks and explains of variation of the calculation. stocks. Calculate the portfolio return. Does not calculate the portfolio return. Calculates the portfolio return using inaccurate or incomplete data.. Calculates the portfolio return. CRITERIA PROFICIENT DISTINGUISHED Analyzes the concept of risk and connects the analysis to relevant real-world examples. Calculates the portfolio return and explains the calculation. https://courserooma.capella.edu/bbcswebdav/institution/BUS-FP/BUS-FP3062/180100/Scoring_Guides/u07a1_scoring_guide.html 1/1
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Running head: CHARACTERISING RISK AND RETURN

Characterizing Risk and Return
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CHARACTERISING RISK AND RETURN

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Risk Definition and Measurement
A risk in credit is used to estimate the financial credibility of a borrower. In credit, some
standards are set to avoid losses that happen as a result of bad debts. When making a credit
application, the borrower has to get assessed (Sherman, 2011). The assessment is done to ensure
that the borrower will meet the obligations of the credit payments. There are several essential
elements are put into consideration when making a credit application. They include condition,
collateral, capital, and character.
Financial risk is another type of risk involved. It happens when the profit of an
investment becomes lower than the estimated return. For example, when an organization does
not make enough money to fulfill its financial obligations, it might put a strain on its economic
status. It will not be able to pay the bank loan thus making it hard for the shareholders. The
different types of risks include investment risk, foreign risk, asset-backed, liquidity risk, and
credit risk (Sherman, 2011).
Investment risk happens when there is a change in the global economy. Change may be
as a result of financial inequalities, changes in diplomacy or political instability. Investment risk
happens when a company does not...


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