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Class Discussion - Risk Return

This JSON summarizes a document containing 7 questions about risk and return concepts including bond returns, stock returns, standard deviation, expected returns, and portfolio returns. Calculations of arithmetic average, geometric average, expected returns, standard deviations, and coefficients of variation are required to answer the questions.

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15 views2 pages

Class Discussion - Risk Return

This JSON summarizes a document containing 7 questions about risk and return concepts including bond returns, stock returns, standard deviation, expected returns, and portfolio returns. Calculations of arithmetic average, geometric average, expected returns, standard deviations, and coefficients of variation are required to answer the questions.

Uploaded by

yingrou.upac
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Class Discussion – Risk & Return

1. An investor purchased a bond 45 days ago for $985. He received $15 in interest and sold the
bond for $980. What is the dollar return on his investment?
A 11
B 12
C 13
D 10
E None of the above

2. An investor purchased a bond 45 days ago for $985. He received $15 in interest and sold the
bond for $980. What is the holding period return on his investment?
A 1.52%
B 0.50%
C 1.92%
D 0.01%
E None of the above

3. Returns for the Company over the last 3 years are shown below. What's the sample standard
deviation of its returns?
Year Return
2020 25%
2021 -10
2022 30
A 20.10%
B 21.79%
C. 23.87%
D. 25.18%

4. Below are the stock returns for the past five years for a firm:
Year Stock Return
1 22%
2 33
3 1
4 -12
5 10

What was the stock’s coefficient of variation during this 5-year period? (use sample standard
deviation)

5. Calculate the arithmetic average and the geometric average annual return for the two
investments below.
Year Investment 1 Investment 2
1 26.5% 12.2%
2 -25.5% 8.5%
3 38.2% 15.1%
4 25.7% 14.8%
5 14.5% 11.0%
Calculate the total value of each investment after five years, assume the original cost in each
investment is $100,000 and the gains are reinvested.

6. The probability distributions of expected returns for Stock A and Stock B are as follows:

Probability Stock A (%) Stock B (%)


15% -30 -26
40% 8 17
30% 20 33
15% 42 50

i) What are the expected returns for Stock A and Stock B?


ii) What are the standard deviations of returns on Stock A and Stock B?
iii) Which stock should you choose based on coefficient of variation?

7. Consider the portfolio with a current market value of $20 million below. Calculate the expected
holding-period return, and the standard deviation of return of this portfolio.

Business conditions Probability End-of-Year Value Annual Dividend


($ million) ($ million)
Excellent 20% 32 3
Good 45% 24 2
Average 25% 21 2
Bad 10% 8 1

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