Subject: Finance

Course: FIN 1001

Lisa is a graduate student from Holmes Institute who is actively involved in investment in the securities market. She had established one investment portfolio 5 years ago.

Required:

Lisa's portfolio has provided the rates of return of 16.6%, 17.2%, - 9.6%, 15.5% and 18.4% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period?

Assume that expected return of the stock A in Lisa's portfolio is 19.5%. The risk premium on the stocks of the same industry are 7.8%. The current Treasury Bond has the return rate of 7%. Calculate the beta of the stock using Capital Asset Pricing Model (CAPM).

Supposing that the forecast on the economic situation and returns of the portfolio will be as follows in the next year, calculate the expected return, variance and standard deviation of the portfolio. (4 marks)

State of economy	Probability	Rate of returns
Mild Recession	0.30	- 5%
Growth	0.40	12%
Strong Growth	0.30	25%