IFP -RISK & RETURN 1. Michael invested $10,000 in the Arica Balanced Fund four years ago. All earnings were reinvested in the fund. If his compound annual rate of return was 7%, what is his investment worth today? 2. You purchased the stock of Sargent Motors at a price of $75.75 one year ago today. If you sell the stock today for $89.00, what is your rate of return? 3. Spartan Sofas, Inc. is selling for $50.00 per share today. In one year, Spartan will be selling for $48.00 per share, and the dividend for the year will be $3.00. (a) What is the cash return on Spartan stock? (b) What is the annualized return? 4. Marcus Berger invested $9,842.33 in Hawkeyehats, Inc. four years ago. He sold the stock today for $11,396.22. What is his arithematic and geometric average return? Use the following information to answer the following question(s). Susan Bright is expected to get returns of 18%, -20.3%, -14%, 17.6%, and 8.3% in the next five years on her investment in Coffee Town, Inc. stock, which she purchases for $73,419.66 today. 5. What is the arithmetic average return on her stock if she sells it five years from today? 6. What is the geometric average return on her stock if she sells it five years from today? 7. How much will Susan's stock be worth if she sells it five years from today? 8. You have invested in a project that has the following payoff schedule: Payoff Probability of Occurrence $40 0.15 $50 0.20 $60 0.30 $70 0.30 $80 0.05 What is the expected value of the investment's payoff? (Round to the nearest $1.00) 9. You are considering investing in a project with the following possible outcomes: Probability of Investment States Occurrence Returns State 1: Economic boom 15% 16% State 2: Economic growth 45% 12% State 3: Economic decline 25% 5% State 4: Depression 15% -5% Calculate the expected rate of return for this investment 10. What is the expected return and the standard deviation of expected return of an investment that has the following expected scenario? 18% probability of a recession, 2.0% return; 65% probability of a moderate economy, 9.5% return; 17% probability of a strong economy, 14.2% return. 11. Using the following information for McDonovan, Inc.'s stock, calculate their expected return and standard deviation. State Probability Return Boom 20% 40% Normal 60% 15% Recession 20% (20%) 12. You are considering investing in a portfolio consisting of 40% Electric General and 60% Buckstar. If the expected rate of return on Electric General is 16% and the expected return on Buckstar is 9%, what is the expected return on the portfolio? 13. The expected return on MSFT next year is 12% with a standard deviation of 20%. The expected return on AAPL next year is 24% with a standard deviation of 30%. If James makes equal investments in MSFT and AAPL, what is the expected return on his portfolio. 14. You plan to create a portfolio with the following securities below. What is your expected return from this portfolio? .Stock Number Market Estimate Code of price (s) d return shares % held AMWY 10,000 5.00 12.0 TM 15,000 4.00 11.0 MYEG 40,000 1.00 13.0 MOONREI 20,000 1.50 9.0 T 15. You plan to create a portfolio with the following securities below. Is the portfolio providing you with the return that you want? Show your findings and explain. Stock Number Market Estimate Beta Code of price (s) d return shares % held AMWY 10,000 5.00 12.0 1.05 TM 15,000 4.00 11.0 1.30 MIEG 40,000 1.00 13.0 1.45 MOONREI 20,000 1.50 9.0 0.95 T Other information: FBM-KLCI = 11.0% Risk-free rate = 3.25% 16. What is the expected rate of return on a portfolio 18% of which is invested in an S&P 500 Index fund, 65% in a technology fund, and 17% in Treasury Bills. The expected rate of return is 11% on the S&P Index fund, 14% on the technology fund and 2% on the Treasury Bills. Use the following information, which describes the possible outcomes from investing in a particular asset to answer the following two question(s). State of the Economy Prob of the States % of Returns Economic recession 25% 5% Moderate economic growth 55% 10% Strong economic growth 20% 13% 17. The expected return from investing in the asset is 18. The standard deviation of returns is 19. You hold a portfolio with the following securities: Percent Security of Portfolio Beta Return X Corporation 20% 1.35 14% Y Corporation 35% .95 10% z Corporation 45% .75 8% Compute the expected return and beta for the portfolio. 20. Your broker mailed you your year-end statement. You have $25,000 invested in Dow Chemical, $18,000 tied up in GM, $36,000 in Microsoft stock, and $11,000 in Nike. The betas for each of your stocks are 1.55 for Dow, 1.12 for GM, 2.39 for Microsoft, and .76 for Nike. What is the beta of your portfolio? 21. Assuming Treasury Bills yields 2.20% and return on S&P is 11%; what is the return on your portfolio? 22. You are considering a portfolio of three stocks with 30% of your money invested in company X, 45% of your money invested in company Y, and 25% of your money invested in company Z. If the betas for each stock are 1.22 for company X, 1.46 for company Y, and 1.03 for company Z, what is the portfolio beta? 23. Siebling Manufacturing Company's common stock has a beta of.8. If the expected risk-free return is 2% and the market offers a premium of 8% over the risk-free rate, what is the expected return on Siebling's common stock? 24. Huit Industries' common stock has an expected return of 11.4% and a beta of 1.2. If the expected risk-free return is 3%, what is the expected return for the market (round your answer to the nearest .1%)? 25. Tanzlin Manufacturing's common stock has a beta of 1.5. If the expected risk-free return is 2% and the expected return on the market is 14%, what is the expected return on the stock? 26. The Elvis Alive Corporation, makers of Elvis memorabilia, has a beta of 2.35. The return on the market portfolio is 12%, and the risk-free rate is 2.5%. According to CAPM, what is the risk premium on a stock with a beta of 1.0? 27. Security A has an expected rate of return of 22% and a beta of 2.5. Security B has a beta of 1.20. If the Treasury bill rate is 2.0%, what is the expected rate of return for security B? 28. You are considering investing in a portfolio consisting of 40% in KLK and 60% in AJI. If the expected rate of return on KLK 16% and the expected return on AJI is 9%, what is the expected return on the portfolio? 29. What is the expected rate of return on a portfolio 18% of which is invested in an Index fund, 65% in a Technology fund and 17% in MM fund. The expected rate of return is 11% on the Index fund, 14% on the Technology fund and 2% on the MM fund. 30. Suppose an investor wishes to establish a portfolio of two counters, IJM Berhad and KL City Berhad, in the proportion of 60% and 40% respectively. The expected return and standard deviation of the two counters are as follows: Counter E(k) Std Dev. IJM Berhad 15% 12% KL City Berhad 20% 14% a) Calculate the expected return of the portfolio. b) Calculate its standard deviation, if the correlation coefficient is i. perfectly positive, where R=1.00 ii. R=0.5 iii.R = 0.0 iv.perfectly negative, where R=-1.00