1) You are considering three stocks with the following expected dividend yields and capital gains:
DIVIDEND YIELD CAPITAL GAIN
A 14% 0%
B 8% 6%
C 0 14%
A) What is the expected return on each stock?
B) How many transactions costs and capital gains taxes affect your choices among the three securities?

3. You are given the following information concerning two stocks:
A B
Expected Return 10% 14%
Standard deviation of the expected return 3.0% 5.0%
Correlation coefficient of the returns -.1%

a) What is the expected return on a portfolio consisting of 40 percent in stock A and 60 percent in stock B?
b) What is the standard deviation of this portfolio?
c) Discuss the risk and return associated with investing (a) all your funds in stock A, (b) all your funds in stock B, and (c) 40 percent in A and 60 percent in B. (This answer must use the numerical information in your answers derived above.)

5. What is the beta of a portfolio consisting of one share of each of the following stocks given their respective prices and beta coefficients?
Stock Price Beta
A $10 1.4
B $24 0.8
C $41 1.3
D $19 1.8
How would the portfolio beta differ if (a) the investor purchased 200 shares of stocks B and C for every 100 shares of A and D and (b) equal dollar amounts were invested in each stock?

6. What is the return on a stock according to the security market line if the risk-free rate is 6 percent, the return on the market is 10 percent, and the stock's beta is 1.5? If the beta had been 2.0, what would be the return? Is this higher return consistent with the portfolio theory?

Solution Summary

Stock Expected Returns, Risk (standard deviation) of a portfolio etc. have been calculated.

A. Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier? Explain.
b. Suppose rf is 5% and rM is 10%. According to the SML and t

Assume the following information over a five year period:
Average risk free rate = 6%
Average return for crane stock = 11%
Average return for load stock = 14%
Standard deviation of crane stock returns = 2%
Standard deviation of load stock returns = 4%
Beta of crane stock = 0.8
Beta of load stock = 1.1
Determine which

7-2) The following table shows the nominal returns on U. S. stocks and the rate of inflation. a. What was the standard deviation of the market returns? b. Calculate the average real return. Year Nominal Return (%) Inflation (%) 2004 12.5 3.3 2005 6.4 3.4 2006 15.8 2.5 2007 5.6 4.1 2008 37.2 0.1
7-10) Here are inflation rates

Chapter 9:
22. Arithmetic and Geometric Returns A stock has had returns of 29 percent, 14 percent, 23 percent, −8 percent, 9 percent, and −14 percent over the last six years. What are the arithmetic and geometric returns for the stock?
Chapter 11
3. Factors Models Suppose a factor model is appropriate to describe the re

1. The standards deviation of stock returns for stock A is 40%. The standard deviation of the market return is 20%. If the correlation between stocks A and the market is 0.70, what is Stock A's Beta
2. An analyst has molded the stock of Crisp Trucking using a two- factor APT model. The risk- free rate is 6%, the expected

Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume th

1) Stock a has a beta of 1.5 and Stock b has a beta of 0.5. The market is in equilibrium, with required returns equaling expected returns. Which of the following statements is CORRECT?
a. Since the market is in equilibrium, the required returns of the two stocks should be the same.
b. If expected inflation remains con

You have observed the following returns over time. Assume that the risk free rate is 6% and the market risk premium is 5%.
Year Stock X Stock Y Market
2006 14% 13% 12%
2007 19% 7% 10%
2008 -16% -5% -12%
2009 3% 1% 1%
2010 2

9. Calculating Returns and Variability You've observed the following returns on Mary Ann Data Corporation's stock over the past five years: 216 percent, 21 percent, 4 percent, 16 percent, and 19 percent.
a. What was the arithmetic average return on Mary Ann's stock over this five-year period?
b. What was the variance of Mary A