1. portfolio is invested 48.3% in Stock A, 28.2% in Stock B, and the remainder in Stock C

| June 6, 2016

Question
1. portfolio is invested 48.3% in Stock A, 28.2% in Stock B, and the remainder in Stock C. The expected returns are 16.3%, 23.4%, and 6.2% respectively. What is the portfolio’s expected returns?

Note: Enter your answer in percentages rounded off to two decimal points.

2. You have observed the following returns on ABC’s stocks over the last five years:

2.7%, 9.8%, 13.3%, 11.7%, 9.1%

What is the geometric average returns on the stock over this five-year period.

3. You have observed the following returns on ABC’s stocks over the last five years:

3.7%, 8.8%, 4.5%, 11.6%, 3.1%

What is the arithmetic average returns on the stock over this five-year period.

4. Suppose the returns for Stock A for last six years was 4%, 7%, 8%, -2%, 9%, and 7%.
Compute the standard deviation of the returns.

5. Calculate the expected returns of your portfolio

Stock

Invest

Exp Ret

A

$183

2.2%

B

$874

14.7%

C

$367

22.1%

Note: Enter your answer in percentages rounded off to two decimal points.

6. You own a portfolio invested 18.5% in Stock A, 12.16% in Stock B, 21.84% in Stock C, and the remainder in Stock D. The beta of these four stocks are 1.14, 0.91, 0.84, and 0.83. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points.

7. Suppose a stock had an initial price of $77.59 per share, paid a dividend of $6.4 per share during the year, and had an ending share price of $80.26. What are the percentage returns?

8. You have observed the following returns on ABC’s stocks over the last five years:

4.7%, 8.9%, -8.6%, 12.3%, -2.9%

What is the arithmetic average returns on the stock over this five-year period.

9. You have observed the following returns on ABC’s stocks over the last five years:

3.4%, 8.4%, -12.6%, 13.7%, -7.9%

What is the geometric average returns on the stock over this five-year period.

10. Suppose a stock had an initial price of $65.3 per share, paid a dividend of $4 per share during the year, and had an ending share price of $107.67. What are the percentage returns?

11. You own a portfolio invested 12.35% in Stock A, 12.21% in Stock B, 12.87% in Stock C, and the remainder in Stock D. The beta of these four stocks are 1.49, 0.74, 0.58, and 1.45. What is the portfolio beta?

12. Suppose a stock had an initial price of $94.82 per share, paid a dividend of $7 per share during the year, and had an ending share price of $80.43. If you own 72 shares, what are the dollar returns?

13. Suppose a stock had an initial price of $70.42 per share, paid a dividend of $8.8 per share during the year, and had an ending share price of $109.58. What are the dollar returns?

14. Calculate the expected returns of your portfolio

Stock

Invest

Exp Ret

A

$151

6.2%

B

$911

16.4%

C

$1,422

29.7%

15. Suppose a stock had an initial price of $74.52 per share, paid a dividend of $8.9 per share during the year, and had an ending share price of $105.78. What are the percentage returns if you own 25 shares?

16. Based on the following information, calculate the expected returns:

Prob

Return

Recession

30%

1.2%

Boom

70%

2.3%

17. Suppose the real rate is 2.35% and the inflation rate is 6.26%. Solve for the nominal rate. Use the Fisher Effect formula.

18. Portfolio diversification eliminates which one of the following?

Total investment risk

Portfolio risk premium

Market risk

Unsystematic risk

Reward for bearing risk

19. A $36,000 portfolio is invested in a risk-free security and two stocks. The beta of stock A is 1.29 while the beta of stock B is 0.90. One-half of the portfolio is invested in the risk-free security. How much is invested in stock A if the beta of the portfolio is 0.58?

$6,000

$9,000

$12,000

$15,000

$18,000

20. What is the beta of the following portfolio?
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0.98

1.02

1.11

1.14

1.20

21. The systematic risk is same as:

Unique risk

Diversifiable risk

Asset-specific risk

Market risk

Unsystematic risk

22. Standard deviation measures _____ risk while beta measures _____ risk.

systematic; unsystematic

unsystematic; systematic

total; unsystematic

total; systematic

asset-specific; market

23. You own a portfolio of two stocks, A and B. Stock A is valued at $6,540 and has an expected return of 11.2 percent. Stock B has an expected return of 8.1 percent. What is the expected return on the portfolio if the portfolio value is $9,500?

9.58 percent

9.62 percent

9.74 percent

9.97 percent

10.23 percent

24. You own a portfolio that has $1,900 invested in Stock A and $2,700 invested in Stock B. If the expected returns on these stocks are 9 percent and 15 percent, respectively, what is the expected return on the portfolio?

10.57 percent

11.14 percent

11.96 percent

12.52 percent

13.07 percent

25. The stock of Billingsley United has a beta of 0.92. The market risk premium is 8.4 percent and the risk-free rate is 3.2 percent. What is the expected return on this stock?

8.87 percent

9.69 percent

10.93 percent

11.52 percent

12.01 percent

26. What is the beta of the following portfolio?
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1.08

1.14

1.17

1.21

1.23

27. 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 returns on this stock be?

28. 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?

29. 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?

30. The stock of Miller’s Machine Shop has an expected return of 3.3 percent. Given the information below, what is the expected return on this stock if the economy booms?

State Probability Rate of Return

Recession .35 -.04

Normal .60 .07

Boom .05 ?

Questions 31-34

Consider the previous example with the following four securities

Security Weight Beta

DCLK .133 4.03

KO .2 0.84

INTC .267 1.05

KEI .4 0.59

What is the portfolio beta?
Which security has the highest systematic risk?
Which security has the lowest systematic risk?
Is the systematic risk of the portfolio more or less than the market?

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