QUESTION NO.

1 (CONCEPT OF ONLY PROFIT “HPY” AND ACCUMULATED AMOUNT

(INCLUDING PROFIT) “HPR”)
At the beginning of last year, you invested $4,000 in 80 shares of the Chang Corporation & you also bought
100 shares from Pong stock for $34 a share. During the year, Chang paid dividends of $5 per share & pong
1.5 per share. At the end of the year, you sold the 80 shares for $59 a share & pong sold at 39 each.
Compute HPY on each of above shares and indicate how much was due to the price change and how much
was due to the dividend income. Also calculate HPR of both Shares.
Compute HPY of total investment and indicate how much was due to the price change and how much was due
to the dividend income. Also calculate HPR total investment.
QUESTION NO. 2 (CONCEPT OF REAL & NOMINAL RATE OF RETURN AND IMPACT OF
INFLATION ON RETURNS OF STOCKS).
You read in Business Week that a panel of economists has estimated that the long-run real growth rate of the
U.S. economy over the next five-year period will average 3 percent. In addition, a bank newsletter estimates
that the average annual rate of inflation during this five-year period will be about 4 percent. What nominal
rate of return would you expect on U.S. government T-bills during this period?
QUESTION NO. 3 (CONCEPT OF REAL & NOMINAL RATE OF RETURN AND IMPACT OF
INFLATION ON RETURNS OF STOCKS).
The rates of return computed in Problems 1, 2, and 3 are nominal rates of return. Assuming that the rate of
inflation during the year was 4 percent, compute the real rates of return on these investments. Compute the
real rates of return if the rate of inflation were 8 percent.
QUESTION NO. 4 (CONCEPT OF RETURN & RISK PROFILE FOR SINGLE & TWO ASSETS IN
RAW DATA AND APPLICATION OF STATISTICAL TOOLS)
During the past five years, you owned two stocks that had the following annual rates of return:
Year Stock T Stock B
1 0.19 0.08
2 0.08 0.03
3 –0.12 –0.09
4 –0.03 0.02
5 0.15 0.04
Compute the
AM annual rate of return for each stock & Together. Which stock is most desirable by this measure?
SD of the annual rate of return for each stock & Together. By this measure, which is the preferable stock?
CV for each stock & Together. By this relative measure of risk, which stock is preferable?
Geometric mean rate of return for each stock & Together.
Discuss the difference between the arithmetic mean return and the geometric mean return for each stock.
QUESTION NO. 5 (CONCEPT OF RETURN & RISK PROFILE FOR SINGLE & TWO ASSETS IN
PROBABILITY DISTRIBUTION AND APPLICATION OF STATISTICAL TOOLS)
Following information is related to stock A and Stock B. Calculate Expected return, expected standard
deviation and Coefficient variation, also select the stock with respect to Risk neutral, Risk averse and Risk
seeker investor.
Expected returns of Expected return of Probability for both
Expected Cases
Stock A Stock B is Stocks
A 20% 15% 0.5
B 30% 10% 0.1
C 50% 25% 0.1
D 2% 10% 0.3

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QUESTION NO. 6 (CONCEPT OF RETURN & RISK PROFILE FOR SINGLE & TWO & THREE
ASSETS IN PROBABILITY DISTRIBUTION AND APPLICATION OF STATISTICAL TOOLS)
The following are monthly percentage price changes for four market indexes:
Compute the following:

Month DJIA S&P 500 Russell 2000 NIKKEI

1. .03 .02 .04 .04
2. .07 .06 .10 –.02
3. –.02 –.01 –.04 .07
4. .01 .03 .03 .02
5. .05 .04 .11 .02
6. –.06 –.04 –.08 .06
 Expected monthly rate of return for each series.
 Standard deviation for each series.
 Covariance between the rates of return for the following indexes:
DJIA—S&P 500
S&P 500—Russell 2000
S&P 500—NIKKEI
Russell 2000—NIKKEI
 The correlation coefficients for the same four combinations.
 Using the answers from Parts a, b, and d, calculate the expected return and standard deviation
of a portfolio consisting of Equal parts of (1) the S&P and the Russell 2000 and (2) the S&P and the
NIKKEI. Discuss the two portfolios.
 Using the answers from Parts a, b, and d, calculate the expected return and standard deviation
of a portfolio consisting of 20%, 30% & 50% parts of (1) the S&P, DJIA and the Russell 2000 and (2) the
S&P, DJIA and the NIKKEI. Discuss the Three Assets portfolios.
QUESTION NO. 7 (CONCEPT OF RETURN & RISK PROFILE FOR CAPM AND APPLICATION
OF STATISTICAL TOOLS)
The following portfolios are being considered for investment. During the period under
consideration, nominal rate on treasury bills is 8%.
Total
Portfolio Estimated Returns Correlation ( portfolio and market)
Risk(∂)
A 15% 5% 0.7
B 20 10 0.9
C 17 3 0.4
Market 12 4  
Required:
1. Compute systematic risk (β) for each portfolio.
2. Compute required rate of return by using CAPM.
3. Compute the Sharpe measure for each portfolio and the market portfolio and
evaluate performance.
4. Compute the Treynor measure for each portfolio and the market portfolio and
evaluate performance.
5. Compute the Jensen measure for each portfolio and the market portfolio and
evaluate performance.
QUESTION NO. 8 (CONCEPT OF RETURN & RISK PROFILE FOR BOND AND APPLICATION
OF STATISTICAL TOOLS)

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The Jamil Company has just issued a Rs. 1,000 par value zero coupon bond with an 8%
yield to maturity, due to mature 15 years from today (assume semiannual
compounding).
1. Apply the concept of Duration & Convexity in the life of fixed income securities.
2. is the market price of the bond? Also Make a risk profile the bond
3. What will be the market price if coupon rate is10%? Also Make a risk profile the
bond.
4. If interest rates remain constant, what will be the price of the bond after 3 years?
QUESTION NO. 9 (CONCEPT OF RETURN & RISK PROFILE FOR FOREX AND APPLICATION
OF STATISTICAL TOOLS)
Complete the following exchange-rate matrix. Assume that there is no transaction.

Currency sold /
$ £ SFr ¤ ¥
Currency purchased
$ 2.0 3.0 2.0 2.0 0.02
£          
SFr          
¤          
¥          

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