Reference no: EM133380189

For answers requiring calculation, showing your work is not required but it will allow me to award partial credit.

Question 1. You purchased a share of stock for $20. One year later, you received $1 as a dividend and sold the share for $29. What was your holding-period return?

Question 2. You have been given this probability distribution for the holding-period return for KMP stock:

Stock of the Economy    Probability                    HPR

Boom                           0.30                             18%

Normal growth             0.50                             12%

Recession                     0.20                             -5%

What is the expected holding-period return for KMP stock? What is the expected standard deviation?

Question 3. If a portfolio had a return of 18%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 34%, the risk premium would be?

Question 4. Over the past year, you earned a nominal rate of interest of 8% on your money. The inflation rate was 3.5% over the same period. The exact actual growth rate of your purchasing power was?

Question 5. Use the below information to answer the following question.

Investment       Expected Return E(r)     Standard Deviation

1                      0.12                             0.3        

2                      0.15                             0.5        

3                      0.21                             0.16      

4                      0.24                             0.21      

U = E(r) - (A/2)s2, where A = 4.0.

Based on the utility function above, which investment would you select? Additionally, What does A represent in the equation?