You are an active investor in the securities market and you have established an investment portfolio of two stock A and B five years ago.   Required:   If your portfolio has provided you with returns of 9.7%, -6.2%, 12.1%, 11.5% and 13.3% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period?  Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the stocks of the same industry are 5.8%, the risk-free rate of return is 5.9% and the inflation rate was 2.7. Calculate beta of this stock using Capital Asset Pricing Model (CAPM) ? Assume that you bought 200 stock B in your portfolio for total investment of $1200, now the market price of the stock is $75, the dividend paid for this stock is $2 each year. How much is the capital gain of this stock ? Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio?    A B Expected return 12.5% 18.5% Standard Deviation of return 15% 20% Correlation of coefficient (p) 0.4

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are an active investor in the securities market and you have established an investment portfolio of two stock A and B five years ago.

 

Required:

 

  1. If your portfolio has provided you with returns of 9.7%, -6.2%, 12.1%, 11.5% and 13.3% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period? 
  2. Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the stocks of the same industry are 5.8%, the risk-free rate of return is 5.9% and the inflation rate was 2.7. Calculate beta of this stock using Capital Asset Pricing Model (CAPM) ?
  3. Assume that you bought 200 stock B in your portfolio for total investment of $1200, now the market price of the stock is $75, the dividend paid for this stock is $2 each year. How much is the capital gain of this stock ?
  4. Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio? 

 

A

B

Expected return

12.5%

18.5%

Standard Deviation of return

15%

20%

Correlation of coefficient (p)

0.4

 

 

 

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