BAO2001 Corporate Finance - Answering the Questions Assignment Help

A1. 

The measurement of deviation risks is a function used to measure financial risk and differs from the general measurements of risk. Risk calculation in the financial industry is mainly used to measure portfolio movements and risk. Standard deviation is a concept of mathematics which is used in a number of fields, including finance, business, accounting and statistics. This calculates how the average value is distributed through individual data points. The normal deviation is determined by deducting each value of the mean, estimating the square root, applying it and determining the average variance. The average monthly return for Volcanic Ltd is 0.81% which is derived from the average of historical returns, whereas Etna Ltd shows an increased average monthly return of 1.91% as compared to index which was tabulated at 0.63% growth.  If standard deviation is used to measure risk, analysts want to know how the annual interest rate spreads, which tells how risky the investment is, the standard deviation for Volcanic is 5.3% for Etna its 3.63% and the index has a standard deviation of 1.75%. In case of volcanic the relationship of risk and return shows an alarming figure where the risk is high and return is low compared to Etna and Index, in case of Etna the return average is high and risk is high in comparison to the index. 

A2. 

It shows that Volcanic has the greatest volatility, which means that it is a more risky investment than Etna and that both are above the standard market deviation which points to both being risk perspectives for an investor.  By comparing this with the average population / sample, the coefficient of variation shows the difference in data. In the risk and return of the financial world, the trade-off between them is significant on both sides, not every investor is looking for high yields and not every investor is looking for a safe or low risk investment. If an investor finds the optimum value, the smaller the defect ratio, the higher the risk and return trade-up, the better it is, and it will prove to be appropriate when comparing two shares. Investment in Etna Ltd would be determined by risk-averse investors as they provide the highest risk / reward ratio and the lowest volatility per return component, it provides a higher average return than the index with a slightly higher risk and provides the best reward for its investor, as it is marginally high from the index. The lowest coefficient of variation represents an investment that is similar to the investment criterion.

A3. 

A correlation between variables shows that the other variable tends to change in a specific direction as one variable changes its value.  We can also evaluate how Etna has a low risk / high return for giving highest return at low risk (volatilities). The equation is helpful because we can use the value of a variable to estimate the other variable value.  This indicates that it has a strong positive correlation with a favourable coefficient of interaction between Volcanic and Etna. In addition, there is a 71 percent dependency among the two.