Question 1.
You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends.
- What is the geometric average return (rG) for the period?
|
Year
|
Beginning, of
Year Price
|
= of shares
bought or sold
|
2008 550.00 100 bought
2009 555.00 50 bought
2010 451.00 75 sold
2011 554.00 75 sold
Question 2.
Use the following scenario analysis for stocks X and Y to answer the questions below:
|
|
Bear Market
|
Normal Market
|
Bull Market
|
|
Probability
|
0.2
|
0.5
|
0.3
|
|
Stock X
|
-20%
|
18%
|
50%
|
|
Stock Y
|
-15%
|
20%
|
10%
|
1. What are the expected returns for stock X and Y?
2. What are the standard deviations of returns on stocks X and Y?
3. Assume that of your $10,000 portfolio, you invest $9,000 in stock X and $1,000 in stock Y. What is the expected return on your portfolio?