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1A) What is the one-year holding period return for a stock that was purchased for $22.40 at the beginning of the year, paid out $1.75

1A) What is the one-year holding period return for a stock that was purchased for $22.40 at the beginning of the year, paid out $1.75 in dividends, and was sold for $28.25?

a.

20.7%

b.

26.1%

c.

26.9%

d.

33.9%

1B) Suppose investors in Acme Co., Inc. expect to earn a return of 4% (with a 20% probability), a return of 10% (with a 60% probability) and a 20% return (with a probability of 20%). What is the expected return for Acmes stock?

a.

11.3%

b.

10.8%

c.

34.0%

d.

11.2%

1C) What is the standard deviation of Acme Co., Inc given the expectations of a 4% return 20% of the time, a 10% return 60% of the time, and a 20% return 20% of the time?

a.

0.27%

b.

5.15%

c.

23.77%

d.

9.75%

1D)

Scenario Probabilities

Scenario Returns - Security A

Scenario Returns - Security B

Scenario Returns- Security C

.35

15%

25%

-6%

.25

10%

12%

0

.25

7%

7%

-3%

.15

5%

1%

4

What are the expected returns for each of the three stocks (A, B, and C)?

a.

11.75%, 11.75%, 3.50%

b.

10.25%, 13.65%, -2.25%

c.

14.00%, 14.30%, -1.15%

d.

2.00%, 1.67%, 2.17%

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