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>Module 0

5alculate the investment’s expected return and its standard deviation

TA

0

10.0%

0

return

and

for periods 2 through 4.

Waters

.00

4 Panner

Period

Price

SAR per share on April, 1 2021 and sold 12 shares for 28.35 SAR on August 1, 2022.

DATA

DATA

25.35

12

DATA

eta

A B Cand Security Market Line

Calculate the expected return on your portfolio. (The expected return of a portfolio equals the weighted average of the indivdiual stocks’ expected returns, where the weights are the percentage invested in each stock).

DATA

Expected

Beta

Return

10.0%

0.95 2 3

0.85

425.0%

5.0%

1.0%

common stock, which has a beta of 1.25.The risk -free rate is 2 percent, and the market portfolio has an expected return of 13 percent.

Solution:

DATA

2.0%

1.25

.

DATA

a.ABC Corporation

S&P 500 Index

Returns

Prices

2,025

Problem 5- | 1 | ||||||||||

Rate of return and standard deviation | |||||||||||

Porter, Inc. is evaluating a security. | C | ||||||||||

D | A | ||||||||||

Probability | Return | ||||||||||

0.10 | – | 10.0% | |||||||||

0.20 | 5.0% | ||||||||||

0. | 3 | ||||||||||

0. | 4 | 25.0% | |||||||||

Expected | |||||||||||

Variance | |||||||||||

Standard deviation | |||||||||||

Problem 5-2 | Holding | Period | Returns | ||||||||

From the price data tha follow, compute the holding period returns for | Waters | Panner | |||||||||

DATA | |||||||||||

Price | |||||||||||

8.00 | |||||||||||

10.00 | |||||||||||

12 | |||||||||||

14.00 | |||||||||||

26.00 | |||||||||||

29.00 | |||||||||||

30.00 | |||||||||||

28.00 | |||||||||||

Problem 5-3: Holding-Period Gain SAR and Return | |||||||||||

Suppose you purchased 20 shares of Apple stock for | 25.35 | ||||||||||

Calculate the holding-period SAR gain for the shares you sold, assuming no dividends was distributed , and the holding-period rate of return. | |||||||||||

Solution: | |||||||||||

HOLDING PERIOD SARS GAIN AND RETURN | |||||||||||

Purchase price | |||||||||||

Selling price | 28.32 | ||||||||||

Shares sold | |||||||||||

Holding-period gain | |||||||||||

Holding-period return | |||||||||||

Problem 5-4 | |||||||||||

CAPITAL ASSET PRICING MODEL | |||||||||||

Using the Capital Asset Pricing Model, estimate the appropriate required rate of return for the three stocks listed below, given that the risk-free rate is 5 percent and the expected return for the makret is 12 percent. | |||||||||||

Stock | B | ||||||||||

0.85 | |||||||||||

0.95 | |||||||||||

1.65 | |||||||||||

Problem 5-5: Portfolio | Beta | ||||||||||

Based on the data below: | |||||||||||

a. | |||||||||||

b. Calculate the portfolio beta. | |||||||||||

Percentage | |||||||||||

of Portfolio | |||||||||||

1 | 1.0% | ||||||||||

2 | 2.0% | 1.25 | 7.0% | ||||||||

23.0% | 12.0% | ||||||||||

0.60 | |||||||||||

20.0% | 1.60 | ||||||||||

Problem 5-6: Required Rate of Return CAPM | |||||||||||

Compute an appropriate rate of return for | ABC Corporation | ||||||||||

Risk-free rate = | |||||||||||

Market expected return = | 13.0% | ||||||||||

Beta = | |||||||||||

Rate of return = | |||||||||||

Problem 5-7: Expected Return, Standard Deviation | |||||||||||

Below are the prices for ABC Corporation and the | S&P 500 Index | ||||||||||

a. Calculate the monthyly holding-eriod returns for ABC and the S&P 500 Index. | |||||||||||

b. What are the average monthly returns and stardard deviations for each? | |||||||||||

Month | |||||||||||

Prices | |||||||||||

May-21 | 48.55 | 2,025 | |||||||||

Jun-21 | 48.11 | -0.91% | 2,024 | ||||||||

Jul-21 | 48.95 | 1.75% | 2,026 | ||||||||

Aug-21 | 50.55 | 3.27% | 2,013 | ||||||||

Sep-21 | 50.82 | 0.53% | 2,014 | ||||||||

Oct-21 | 52.55 | 3.40% | 2,018 | ||||||||

Nov-21 | 53.75 | 2.28% | 2,023 | ||||||||

Dec-21 | 54.05 | 0.56% | |||||||||

Jan-22 | 47.95 | -11.29% | 1,995 | ||||||||

Feb-22 | 51.33 | 7.05% | 2,095 | ||||||||

Mar-22 | 51.58 | 0.49% | 2,096 | ||||||||

Apr-22 | 52.42 | 1.63% | 2,088 | ||||||||

May-22 | 53.77 | 2.58% | 2,105 |