Problem #1 ( 11 Marks) A stock had returns of 10%, 2%, 8%, 17%, and -7% for the past five years. The average return on corporate bonds and government of Canada treasury bills over the past five years was 3.5% and 2% respectively. Based on this information, please answer the questions below: a. What was arithmetic average annual return for this stock? (2 marks) b. What was the standard deviation of the returns for this stock? (4 marks) c. Assuming that the returns on the stock follow a normal distribution, what is the range of possible returns, 95% of the time? (3 marks) d. What is the reward for bearing risk (risk premium) of owning this stock? (2 marks) Problem #2 (5 Marks) You have just purchased a share of a company for $20. The company is expected to pay a dividend of $.45 per share in exactly one year. If you want to earn a 12% return on your investment, what price do you need receive if you expect to sell the share immediately after it pays the dividend? Problem #3 (11 Marks) A stock has the following prices and dividends. Year Price (at end of year) Dividend $52.50 $55.50 $53.25 $56.75 1 2 3 4 $0.25 $0.35 $0.30 $0.36 What is the arithmetic and geometric average return on this stock? Problem #4 (8 Marks) An investment firm is considering a portfolio of equal weighting in a cyclical stock, CDN and a countercyclical stock, NNP. The firm has $20,000 to invest. It is expected that there will be three economic states: Good, Average, and Bad, each with equal probability of occurrence. The table below shows the percentage return for stocks CDN and= NNP under the different economic states. Using this information please answer the following questions: State of economy Return for stock Return for stock CDN NNP 12% -8% 5% 1% ?? % 4.55% Good Average Bad Expected return Standard deviation 2% 14% 2.67% ?? % a. What is the expected return for stock CDN? (2 marks) b. What is the standard deviation of the returns of stock NNP? (4 marks) c. What is the expected return of this portfolio? (2 marks) Problem #5 (5 Marks) You have $200,000 to invest in a portfolio containing Stock ABC and Stock DEF. Your goal is to create a portfolio that has an expected return of 10.4125 percent. If Stock ABC has an expected return of 13.5 percent and Stock DEF has an expected return of 8.75 percent, how much money will you invest in stock DEF? Problem #1 ( 11 Marks) A stock had returns of 10%, 2%, 8%, 17%, and -7% for the past five years. The average return on corporate bonds and government of Canada treasury bills over the past five years was 3.5% and 2% respectively. Based on this information, please answer the questions below: a. What was arithmetic average annual return for this stock? (2 marks) b. What was the standard deviation of the returns for this stock? (4 marks) c. Assuming that the returns on the stock follow a normal distribution, what is the range of possible returns, 95% of the time? (3 marks) d. What is the reward for bearing risk (risk premium) of owning this stock? (2 marks) Problem #2 (5 Marks) You have just purchased a share of a company for $20. The company is expected to pay a dividend of $.45 per share in exactly one year. If you want to earn a 12% return on your investment, what price do you need receive if you expect to sell the share immediately after it pays the dividend? Problem #3 (11 Marks) A stock has the following prices and dividends. Year Price (at end of year) Dividend $52.50 $55.50 $53.25 $56.75 1 2 3 4 $0.25 $0.35 $0.30 $0.36 What is the arithmetic and geometric average return on this stock? Problem #4 (8 Marks) An investment firm is considering a portfolio of equal weighting in a cyclical stock, CDN and a countercyclical stock, NNP. The firm has $20,000 to invest. It is expected that there will be three economic states: Good, Average, and Bad, each with equal probability of occurrence. The table below shows the percentage return for stocks CDN and= NNP under the different economic states. Using this information please answer the following questions: State of economy Return for stock Return for stock CDN NNP 12% -8% 5% 1% ?? % 4.55% Good Average Bad Expected return Standard deviation 2% 14% 2.67% ?? % a. What is the expected return for stock CDN? (2 marks) b. What is the standard deviation of the returns of stock NNP? (4 marks) c. What is the expected return of this portfolio? (2 marks) Problem #5 (5 Marks) You have $200,000 to invest in a portfolio containing Stock ABC and Stock DEF. Your goal is to create a portfolio that has an expected return of 10.4125 percent. If Stock ABC has an expected return of 13.5 percent and Stock DEF has an expected return of 8.75 percent, how much money will you invest in stock DEF