37 Year Returns (Country A) 18 1 5% 1 2 -15% 587 The following data represents the annual returns from a hotel chain in two countries. mean Returns (Country B) 8% 10% 3 35% 9% 4 0% 10% 5 25% 10% 6 -10% 12% 7 50% 9% 8 5% 10% 9 10% 9% 10 -5% 12% a. As the owner of the hotels in the two countries, which of the two countries would you exit your investment if there is a new policy that requires you to operate in only one country if you are a risk averse investor? Show how you arrive at this answer by using appropriate measures of central tendencies. [10 marks] b. Assuming you are given additional information that the business environment for the next 5 years will be favourable in each country. Would this affect your choice in (a) above if you are a risk loving investor? Explain. [5 marks] Onection to M
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To calculate the average return for Country A, we sum up all the returns and divide by the number of years: Average return for Country A = (5% - 15% + 35% + 0% + 25% - 10% + 50% + 5% + 10% - 5%) / 10 = 10% To calculate the average return for Country B, we sum up Show more…
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Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 20% chance of being good, a 50% chance of being fair, and a 30% chance of being poor. Probability distributions of the returns for these markets are given in the accompanying table. State of the U.S. Economy Returns in Europe Returns in Asia Good 10% 18% Fair 6% 10% Poor -6% -12% a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.) Europe Expected value: % Standard deviation: % Asia Expected value: % Standard deviation: % b. What will Janice pick as an investment if she is risk neutral? Investment in Europe Investment in Asia
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