1. What are the components of a stocks realised return? 2. How does standard deviation relate to the general concept of risk? 3. What is meant by diversification and how does it relate to common versus independent risk? 4. Which of the following risks of a stock are likely to be unsystematic, diversifiable risks and which are likely to be systematic risks? Which risks will affect the risk premium that investors will demand? a. The risk that the founder and CEO retire. b. The risk that oil prices rise, increasing production costs. c. The risk that a product design is faulty, and the product must be recalled. d. The risk that the economy slows, reducing demand for the firms products. e. The risk that your best employees will be hired away. f. The risk that the new product you expect your R&D division to produce will not materialise. 5. You bought a stock one year ago for $50 per share and sold it today for $55 per share. It paid a $1 per share dividend today. What was your realised return? 6. How much of the return in Question 5 (above) came from dividend yield and how much came from capital gain? 7. Suppose you purchase shares in ABC Ltd on January 1 and sell it on December 31. Using the information provided below what is your realised return? Assume that the stock pays no dividend. DATE ABC Ltd SHARE PRICE 01-01-19 $10.00 31-03-19 $11.00 30-06-19 $10.50 30-09-19 $11.10 31-12-19 $11.00 8. Consider the following five monthly returns: 5% -2% 4% 8% -1% a. Calculate the arithmetic average monthly return over this period. b. Calculate the monthly variance over this period. c. Calculate the monthly standard deviation over this period. 9. You observe a portfolio for five years and determine that its average return is 12% and the standard deviation of its returns is 20%. What is the 95% confidence interval for this portfolio for next year? Can you be 95% confident that this portfolio will not lose more than 30% of its value next year? 10. Consider the following average annual returns: Investment Average Return Small Stocks 23.5% S&P 500 13.1% Corporate Bonds 7.3% Treasure Bonds 6.1% Treasury Bills 4.0% What is the excess return for the portfolio of small stocks? A) 11.7% B) 16.6% C) 19.5% D) 17.6%