i need help in this finace assignment

Problem #1 (7 marks)

A stock had returns of 5 percent, 16 percent, -18 percent, and 11 percent for the past four years. Based on this information what is the 99 percent probability range for any one given year? (Use the arithmetic mean)

Problem #2 (8 Marks)

A stock had the following prices and dividends. What is the geometric average return on this stock?

Y ear

Price (end of year)

Dividend

1

$22.57

-

2

$22.90

$.30

3

$22.26

$.31

4

$24.08

$.33

Problem #3 (6 Marks)

You have $90,000. You put 15% of your money into a stock with an expected return of 12%, $30,000 into a stock with an expected return of 15% and the rest into a stock with an expected return of 20%. What is the expected return of your portfolio? (6 Marks)

Expected return of the portfolio:

E(Rp)=W1E(R1)+W2E(R2)+...+Wn E(Rn)

1

Problem #4 (8 Marks)

You are considering buying 100 shares of Merrick Industries common stock. The common stock is expected to pay a dividend of $3.50 a year from today; the growth rate of the dividends is 4%; the covariance between Merrick's return and the marker's return is expected to be 0.003; the variance of the market's return is expected to be 0.002. It is also estimated that the return on the TSX/S&P is 15% and the return on government of Canada T-Bills is 7%. Should you buy the shares if the current market price of Merrick's common stock is $21.00? Show your work.

Problem #5 (2 marks)

If two stocks had the same beta, but Stock A had high unsystematic risk and Stock B had low unsystematic risk, would investors expect a higher return from holding one of these securities? Explain your answer.

Problem #6 (13 marks)

What is the expected return and standard deviation of a portfolio which is comprised of $4,500 invested in stock S and $3,000 in stock T? Assume the correlation coefficient between the two securities = -.80.

State of Economy

Probability of State of Economy

Return if State Occurs Stock S

Return if State Occurs Stock T

Boom

10%

12%

4%

Normal

65%

9%

6%

Recession

25%

2%

9%

Problem #7 (13 marks)

2

a) For each of the stocks listed below, determine which are underpriced, overpriced or correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%. (11 marks)

b) In an efficient market, what occurs to bring the expected return and required return back into equilibrium? (2 marks)

Stock

Beta

Expected Return

A

.85

9.2%

B

1.08

11.8%

C

1.69

15.3%

D

.71

7.8%

E

2

Po = $25, P1 = $28.46, D1 = $1.50

Problem #8 (8 marks)

Sinclair Fund has invested in securities of five corporations. The market value of each of the investments and the beta of the corporations is as follows:

Stock Investment Beta

3

1. 1$6 million
2. 2$5 million
3. 3$4 million
4. 4$3 million
5. 5$2 million

0.50 0.80 1.00 1.40 2.00

The risk free rate is 7 percent and

a) What is the portfolio's beta coefficient? (5 marks) b) What is the fund's required rate of return? (3 marks)