1. Determine the income yield, capital gains yield and total return given information below: (a) A 6 percent bond purchased a year ago or $990 that is currently selling for $995

(b) A stock that was bought for $20 and provided four quarterly dividends of $0.25 each but is currently selling for $19.50

2. Calculate the arithmetic and geometric means of the following rates of return: 4.3%, 3.2%, 5.6%, 10.5% and -7.6%.

3. Suppose an investment was bought for $100, rose to $110 after one year and then fell to $100 by the end of the second year. Suppose also that the investment did not provide any income during the two year period. Calculate the arithmetic average return and the geometric mean return of the investment.

4. Calculate the expected return for each security given the information below:

State of the Economy Probability of Occurrence Expected return on A in state Expected return on B in state

High growth 10% 60% 5%

Moderate growth 20% 20% 25%

No growth 50% 10% 5%

Recession 20% -25% 0%

5. Estimate the volatility of stocks A and B in question (4) above.

6. What is the expected return on a portfolio that has $600 invested in stock A and $1,400 invested in stock B in question (4) above.

7. Calculate the covariance of returns on stocks A and B in question (4) above.

8. Estimate the volatility of the portfolio in question 6 which has 30% invested in stock A and 70% invested in stock B, using covariance.

9. Repeat question 8 using correlation.

10. Are you risk averse?