Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are an active investor in the securities market and you have established an investment portfolio of two stock A and B five years ago.

You are an active investor in the securities market and you have established an investment portfolio of two stock A and B five years ago.

Required:

a) If your portfolio has provided you with returns of 9.7%, -6.2%, 12.1%, 11.5% and 13.3% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period? (1 mark)?

b) Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the stocks of the same industry are 5.8%, the risk-free rate of return is 5.9% and the inflation rate was 2.7. Calculate beta of this stock using Capital Asset Pricing Model (CAPM) (1 mark)?

c) Assume that you bought 200 stock B in your portfolio for total investment of $1200, now the market price of the stock is $75, the dividend paid for this stock is $2 each year. How much is the capital gain of this stock (1 mark)?

d) Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio? (4 marks)

A B

Expected return 12.5% 18.5%

Standard Deviation of return 15% 20%

Correlation of coefficient (p) 0.4

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Investments Valuation and Management

Authors: Bradford Jordan, Thomas Miller

7th edition

978-0078096785, 78096782, 978-0077861636, 77861639, 978-0078115660

More Books

Students also viewed these Finance questions

Question

What are the most important considerations for building HPTs?

Answered: 1 week ago

Question

What goals could you set to achieve HPTs for each of the projects?

Answered: 1 week ago