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>Module 0
5alculate the investment’s expected return and its standard deviation
TA
0
10.0%
0
return
and
for periods 2 through 4.
Waters
.00
4 Panner
Period
Price
SAR per share on April, 1 2021 and sold 12 shares for 28.35 SAR on August 1, 2022.
DATA
DATA
25.35
12
DATA
eta
A B Cand Security Market Line
Calculate the expected return on your portfolio. (The expected return of a portfolio equals the weighted average of the indivdiual stocks’ expected returns, where the weights are the percentage invested in each stock).
DATA
Expected
Beta
Return
10.0%
0.95 2 3
0.85
425.0%
5.0%
1.0%
common stock, which has a beta of 1.25.The risk -free rate is 2 percent, and the market portfolio has an expected return of 13 percent.
Solution:
DATA
2.0%
1.25
.
DATA
a.ABC Corporation
S&P 500 Index
Returns
Prices
2,025
Problem 5- | 1 | ||||||||||
Rate of return and standard deviation | |||||||||||
Porter, Inc. is evaluating a security. | C | ||||||||||
D | A | ||||||||||
Probability | Return | ||||||||||
0.10 | – | 10.0% | |||||||||
0.20 | 5.0% | ||||||||||
0. | 3 | ||||||||||
0. | 4 | 25.0% | |||||||||
Expected | |||||||||||
Variance | |||||||||||
Standard deviation | |||||||||||
Problem 5-2 | Holding | Period | Returns | ||||||||
From the price data tha follow, compute the holding period returns for | Waters | Panner | |||||||||
DATA | |||||||||||
Price | |||||||||||
8.00 | |||||||||||
10.00 | |||||||||||
12 | |||||||||||
14.00 | |||||||||||
26.00 | |||||||||||
29.00 | |||||||||||
30.00 | |||||||||||
28.00 | |||||||||||
Problem 5-3: Holding-Period Gain SAR and Return | |||||||||||
Suppose you purchased 20 shares of Apple stock for | 25.35 | ||||||||||
Calculate the holding-period SAR gain for the shares you sold, assuming no dividends was distributed , and the holding-period rate of return. | |||||||||||
Solution: | |||||||||||
HOLDING PERIOD SARS GAIN AND RETURN | |||||||||||
Purchase price | |||||||||||
Selling price | 28.32 | ||||||||||
Shares sold | |||||||||||
Holding-period gain | |||||||||||
Holding-period return | |||||||||||
Problem 5-4 | |||||||||||
CAPITAL ASSET PRICING MODEL | |||||||||||
Using the Capital Asset Pricing Model, estimate the appropriate required rate of return for the three stocks listed below, given that the risk-free rate is 5 percent and the expected return for the makret is 12 percent. | |||||||||||
Stock | B | ||||||||||
0.85 | |||||||||||
0.95 | |||||||||||
1.65 | |||||||||||
Problem 5-5: Portfolio | Beta | ||||||||||
Based on the data below: | |||||||||||
a. | |||||||||||
b. Calculate the portfolio beta. | |||||||||||
Percentage | |||||||||||
of Portfolio | |||||||||||
1 | 1.0% | ||||||||||
2 | 2.0% | 1.25 | 7.0% | ||||||||
23.0% | 12.0% | ||||||||||
0.60 | |||||||||||
20.0% | 1.60 | ||||||||||
Problem 5-6: Required Rate of Return CAPM | |||||||||||
Compute an appropriate rate of return for | ABC Corporation | ||||||||||
Risk-free rate = | |||||||||||
Market expected return = | 13.0% | ||||||||||
Beta = | |||||||||||
Rate of return = | |||||||||||
Problem 5-7: Expected Return, Standard Deviation | |||||||||||
Below are the prices for ABC Corporation and the | S&P 500 Index | ||||||||||
a. Calculate the monthyly holding-eriod returns for ABC and the S&P 500 Index. | |||||||||||
b. What are the average monthly returns and stardard deviations for each? | |||||||||||
Month | |||||||||||
Prices | |||||||||||
May-21 | 48.55 | 2,025 | |||||||||
Jun-21 | 48.11 | -0.91% | 2,024 | ||||||||
Jul-21 | 48.95 | 1.75% | 2,026 | ||||||||
Aug-21 | 50.55 | 3.27% | 2,013 | ||||||||
Sep-21 | 50.82 | 0.53% | 2,014 | ||||||||
Oct-21 | 52.55 | 3.40% | 2,018 | ||||||||
Nov-21 | 53.75 | 2.28% | 2,023 | ||||||||
Dec-21 | 54.05 | 0.56% | |||||||||
Jan-22 | 47.95 | -11.29% | 1,995 | ||||||||
Feb-22 | 51.33 | 7.05% | 2,095 | ||||||||
Mar-22 | 51.58 | 0.49% | 2,096 | ||||||||
Apr-22 | 52.42 | 1.63% | 2,088 | ||||||||
May-22 | 53.77 | 2.58% | 2,105 |