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Assignment 1 - Code 101

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28 views1 page

Assignment 1 - Code 101

hhhh

Uploaded by

Thanh Thuỳ
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Moodle 1

CODE 101
1. On February 1, you bought 100 shares of a stock for $55 a share and a year later you sold it for $63 a share.
During the year, you received a cash dividend of $2.0 a share. Compute your HPR and HPY on this stock
investment.
2. At the beginning of last year, you invested $7,000 in 140 shares of the Cheng Corporation. During the year,
Cheng paid dividends of $2.5 per share. At the end of the year, you sold 140 shares for $45 a share. Compute
your total HPY on these shares.
3. The rates of return computed in Problems 1, and 2 are nominal rates of return. Assuming that the rate of
inflation during the year was 3 percent, compute the real rates of return on these investments.
4. During the past five years, you owned two stocks that had the following annual rates of return:

Year Stock A Stock B


1 0.25 0.04
2 0.07 0.02
3 -0.13 -0.05
4 -0.03 0.02
5 0.25 0.05
a. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this
measure?
b. Compute the standard deviation of the annual rate of return for each stock. By this measure, which is the
preferable stock?
c. Compute the coefficient of variation for each stock. By this relative measure of risk, which stock is preferable?
d. Compute the geometric mean rate of return for each stock.
5. You are considering acquiring shares of common stock in the Madison Beer Corporation. Your rate of return
expectations are as follows:

Possible Rate of Return Probability


-0.22 0.25
0.06 0.15
0.25 0.25
0.40 0.30
Compute the expected return [E(Ri)] on your investment in Madison Beer.
6. During the past year, you had a portfolio that contained U.S. government T-bills, long-term government bonds,
and common stocks. The rates of return on each of them were as follows:
U.S. government T-bills 6.0%
U.S. government long-term bonds 7.20%
U.S. common stocks 12.20%
During the year, the consumer price index, which measures the rate of inflation, went from 165 to 174. Compute
the rate of inflation during this year. Compute the real rates of return on each of the investments in your portfolio
based on the inflation rate.
7. Assume that the consensus required rate of return on common stocks is 14.8 percent. In addition, you read in
Fortune that the expected rate of inflation is 5.5 percent and the estimated long-term real growth rate of the
economy is 3 percent. What interest rate would you expect on U.S.government T-bills? What is the approximate
risk premium for common stocks implied by these data?

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