Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Over the past 10 years, Diana has slowly built a diversified portfolio of common stock. Currently her portfolio includes 20 different common stock issues and
Over the past 10 years, Diana has slowly built a diversified portfolio of common stock. Currently her portfolio includes 20 different common stock issues and has a total market value of RM82,500. Diana is at present considering the addition of 50 shares of common stock issue-stock X. To assess the return and risk of the issuance, she has gathered dividend income and share price data for both over the last 10 years (2011-2020). Diana investigation of the outlook for these issues suggests that each will, on average, tend to behave in the future just as it has in the past. She therefore believes that the expected return can be estimated by finding the average Holding Period Return over the past 10 years for each of the stocks. The historical dividend income and stock price data collected by Diana are given in the accompanying table. Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Dividend Income 1.90 1.60 1.70 2.00 2.10 2.20 2.30 2.45 2.00 1.95 Stock X Beginning 22.00 23.00 26.00 25.00 24.00 27.00 25.00 23.00 22.00 19.00 Ending 23.00 26.00 25.00 24.00 27.00 25.00 23.00 22.00 19.00 19.00 a) Calculate the holding Period Return for the stock X in each of the preceding 10 years (10 marks) Compute the expected return for stock X. (6 marks) b) c) Use the HPRs and expected return calculated in question b) to find the standard deviation of the HPR for stock X over the 10-year period. (9 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started