Calculate the expected holding-period return

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Reference no: EM132136176

Question 1:

The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows:



Stock Price




Normal economy






a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely.

b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%.For Problems 12-16, assume that you manage a risky portfolio with an expected rate of return 0 and a standard deviation of 27%. The T-bill rate is 7%.

Question 2:

Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. (LO 5-3)

a. What is the expected return and standard deviation of your client's portfolio?

b. Suppose your rislcy portfolio includes the following investments in the given proportions:

Stock A


Stock B


Stock C


What are the investment proportions of your client's overall pordolio, including the position in T-bills?

c. What is the Sharpe ratio (8) of your risky portfolio and your client's overall portfolio?

d. Draw the CAL of your portfolio on an expected return/standard deviation diagram. What is the slone of the CAL? Show the position of your client on your fund's CAL.

Verified Expert

This assignment is based on the concepts of financial management topic. In this provided task, there are main two questions, based on the financial derivatives. In the first problem, we have to manage a risky portfolio with an expected rate of return, Sharpe ratio and have to draw CAL. In the second problem, we have to evaluate the expected holding period return and standard deviation of the holding period return.

Reference no: EM132136176

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11/23/2018 1:36:20 AM

This solution was very good one with high marks, really appreciate the expert a lot. I passed the assignment. Thank you all for the help. The lecturer was happy with the assignment, thanks once more.

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