A stock has had returns

| June 1, 2016

Question
1. A stock has had returns of 16.12%, 22.11%, -25.00%, 26.14%, and 16.00% over the past five years. What was the holding period return for the stock?

a. 55.61%

b. 155.61%

c. 50.67%

2. 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: 12.90%

Dollar Amount to Invest: $10,000

a. X = $7,800; Y = $2,200

b. X = $2,200; Y = $7,800

c. X = $6,800; Y = $3,200

3. 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

30 pct..

1.80

Stock B

35 pct..

1.50

Stock C

15 pct.

1.38

Stock D

20 pct.

0.80

a. 1.43

b. 1.37

c. 1.40

4. 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

0.10

-0.03

0.05

Normal

0.65

0.11

0.062

Bull

0.25

0.25

0.092

a. Cov = 0.001086, Corr=0.9589

b. Cov = 0.001086, Corr=0.00019

c. Cov= 0.001092, Corr=0.9327

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