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    Expected return

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    1. Sam Tsantes has analyzed two stocks, Acme Airlines and Ajax Travel Associates. His analysis concludes that Acme has a 30% chance of producing a return of 10% and a 70% chance of producing a return of 15%. At the same time, Ajax has a 30% chance of losing 25% and a 70% chance of producing a return of 50%. If Sam invests $80,000 in Acme shares and $20,000 in Ajax shares. What is the expected return on the portfolio?

    2. A portfolio manager buys a 30-year, zero-coupon Treasury security for a price of $400.03. The bond is held for 10 years and then sold. Interest rates have declined. The sale price is:

    a. $400.03
    b. $1000.00
    c. Less than $400.03
    d. More than $400.03

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    Solution Preview

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    ANSWERS

    Question 1
    Acme: ...

    Solution Summary

    Expected return is embodied.

    $2.19