QUESTION 1

One year ago, you bought a stock for $36.48 a share. You recently received a dividend of $1.62 per share and sold the stock today for $40.18 a share. What is the dollar return and percentage return on this investment?

One year ago, you bought 480 shares of ABC Company for $28.32 a share. You recently received a dividend of $0.75 per share and sold the stock today for $35 a share. What is the dollar return and percentage return on this investment?

QUESTION 2

Over the past five years, a stock provided annual returns of 12.6 percent, 5.8 percent, 7.9 percent, -11.2 percent and -2.4 percent. What is the arithmetic average return? What is the variance of these returns? What is the standard deviation of these returns?

A company had returns of 5%, 10%, -15%, 20%, -12%, 22%, 8% in the last few years. Compute the arithmetic average return and standard deviation of returns.

Refer to Problem 2. If inflation rate is 2.5% and the risk-free rate is 3%, solve for the real rate and the risk premium. Note: Use arithmetic average return as nominal rate

QUESTION 3

Suppose the nominal rate is 15%, the real rate is 10.5%, what is the inflation rate?

If the investors require a 10% real rate of return and the inflation rate is 8%, what is the nominal rate?

The nominal rate is 15.5% and the inflation rate is 5%, what is the real rate?

QUESTION 4

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Assume that your portfolio comprises of Stocks A, B, and C. Based on the following information, calculate the portfolio expected return and portfolio beta:

Security / Value / Return / Beta
Stock A / $10,000 / 10% / 1.1
Stock B / $20,000 / 5% / 0.2
Stock C / $30,000 / 15% / 2.1

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A stock has a beta of 0.90, the expected return on the market is 13%, and the risk-free rate is 6%. What must the expected return on this stock be?

A stock has an expected return of 17%, the risk-free rate is 5.5%, and the market risk premium is 8%. What must the beta of this stock be?

You own a portfolio that has $1,200 invested in Stock A and $1,900 invested in Stock B. If the expected returns on these stocks are 11% and 16%, respectively, what is the expected return on the portfolio?

QUESTION 6

There are 3 stocks in a portfolio: Stock A, Stock B, and Stock C. The portfolio has a return of 3.3%. You are given below the weight of each stock in the portfolio and rate of return. Calculate the return for Stock C.

StockWeightRate of Return

A 35% -4%

B 60% 7%

C 5% ?

QUESTION 11

You want to create a portfolio equally as risky as the market. Given this information, fill in the rest of the following table:

Asset Investment Beta

Stock A 20% 0.8

Stock B 25% 1.3

Stock C ? 1.5

Risk-free Asset ? ?

Hint: Some questions to answer before you start solving the above table:

What is the beta of the market portfolio? risk-free asset?

What should the weights of individual securities in a portfolio sum to?

QUESTION 12

Problem Set 12: Portfolio Beta

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You want to create a portfolio equally as risky as the market. Given this information, fill in the rest of the following table:

Asset / Investment / Beta
Stock A / 20% / 0.8
Stock B / 25% / 1.3
Stock C / ? / 1.5
Risk-free Asset / ? / ?

Hint: Some questions to answer before you start solving the above table:

  • What is the beta of the market portfolio? risk-free asset?
  • What should the weights of individual securities in a portfolio sum to?

QUESTION 13

The Treasury Bill rate is 4%, and the expected return on the market portfolio is 12%.

  1. What is the risk premium on the market?
  2. What is the required return on an investment with beta of 1.5?
  3. If the market expects a return of 11.2% from Stock X, what is its beta?

QUESTION 10

Problem Set 10 (Problems 6-8, 6-10 from end of chapter)

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  1. Suppose you hold a diversified portfolio consisting of $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.12. Now, suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 1.75. Calculate your portfolio's new beta.
  2. You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta od 0.90 and using the proceeds to purchase another stock with a beta of 1.40. What will the portfolio's new beta be after these transactions?

QUESTION 8

Assume Risk–free rate = 3%, Expected return on the market = 8%. Calculate the expected return on the stock if the beta is

  1. 0
  2. 0.5
  3. 1
  4. 2
  5. Interpret your answers

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