Reference no: EM133500683

Discussion Post: Financial Statistics Risk and Return

Part I

Question A: What is the total percentage return for an investor who purchased a stock for $5.11, received $2.85 in dividend payments, and sold the stock for $8.92?

Question B. A stock has monthly returns of -18%, 28%, 23%, and -12%. What is the stock's geometric average return?

Question C. A stock had the following annual returns: 8%, 15%, 12%, and 5%. What is the stock's expected return, variance, and standard deviation?

Question D. A stock has an expected return of 18.5% and a standard deviation of 14.7%. What is the 68%, 95%, and 99% confidence interval for this stock?

Part II

Question A. There is a 46% probability of a below average economy and a 54% probability of an average economy. If there is a below average economy stocks A and B will have returns of -5% and -8%, respectively. If there is an average economy stocks A and B will have returns of 13% and 14%, respectively. Calculate the expected returns and standard deviations of stocks A and B.

Question B. There is a 25% probability of an average economy and a 75% probability of an above average economy. You invest 10% of your money in Stock S and 90% of your money in Stock T. In an average economy the expected returns for Stock S and Stock T are 6% and 9%, respectively. In an above average economy the the expected returns for Stock S and T are 15% and 35%, respectively. What is the expected return for this two stock portfolio?

Question C. You are invested 16% in growth stocks with a beta of 1.6, 17% in value stocks with a beta of 1.1, and 67% in the market portfolio. What is the beta of your portfolio?

Question D. An analyst gathered the following information for a stock and market parameters: stock beta = 0.8; expected return on the Market = 12.7%; expected return on T-bills = 4.8%; current stock Price = $8.51; expected stock price in one year = $13.37; expected dividend payment next year = $1.14. Calculate the required return and expected return for this stock.

Question E. The market risk premium the next period is 8.3% and the risk-free rate is 2.4%. Stock Z has a beta of 0.6 and an expected return of 10.2%. What is the reward-to-risk ratio for the market portfolio and Stock Z?