A firm you are analyzing has had

| June 12, 2016

Question
A firm you are analyzing has had the following returns the past 5 years: 7.0%, 6.0%, -4.0%, 3.0% and 2.0 %. What are the standard deviation and variance of the past five year returns?
0.0432, 0.0019
0.0387, 0.0015
0.0432, 0.0015

Question 2
A stock has had returns of 5.05%, 12.11%, 5.83%, 6.14%, and -13.19% over the past five years. What was the holding period return for the stock?
14.84%
114.84%
83.49%

Question 3
You are constructing a two stock portfolio based on the information provided below. What dollar amount will you invest in each stock to achieve the desired return goal?

Stock X Stock Y
Expected Return 14.0% 9.0%

Goal Return of Portfolio: 10.00%

Dollar Amount to Invest: $20,000

X = $4,000; Y = $16,000
X = $16,000 Y = $4,000
X = $13,600; Y = $6,400

Question 4
Your stock portfolio contains 4 stocks with the following betas and weight as a percentage of your portfolio. What is the portfolio beta?

Weight Beta
Stock A 10 pct. 0.75
Stock B 35 pct. 1.90
Stock C 20 pct. 1.38
Stock D 35 pct. 1.16
1.42
1.30
1.36

Question 5
Based on the following information determine the covariance and correlation between the returns of the two stocks.

State of Economy Probability of State of Economy Return of X Return of Y
Bear 0.35 -0.02 0.034
Normal 0.60 0.138 0.062
Bull 0.05 0.218 0.092
Cov = 0.001243, Corr=0.9794
Cov = 0.001243, Corr=0.00025
Cov= 0.001469, Corr=0.9610

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