MGF 301
Assignment 3

1.a) Actual return on investment= (18*200)-(23*200) / (23*200)= -0.1696/ -17%

b) (i) Dividend Yield= $1.10/23= 0.0478/ 5%

(ii) Percentage capital gain=
-5/23 =-0.2174/ -21%

c) Real rate of return on stock= [(1+6%)/ (1+2%)] -1 = 0.039 / 4%

2. | | | | Stock Price: | $72 | | Next Year: | | | | | 10% | $10 | | | 20% | $38 | | | 30% | $73 | | | 30% | $100 | | | 10% | $150 | | | | | | (a) | | | | Actual Return | P*R | | -86.11% | | -8.61% | | -47.22% | | -9.44% | | 1.39% | | 0.42% | | 38.89% | | 11.67% | | 108.33% | | 10.83% | | Expected Return: | 4.86% | | | | | | (b) | | | | (r-E(r))^2 | | P*(r-E(r))^2 | 82.76% | | 8.28% | | 27.13% | | 5.43% | | 0.12% | | 0.04% | | 11.58% | | 3.47% | | 107.07% | | 10.71% | | Expected Variance: | 27.92% | | Expected SD: | 52.84% | | | | | |

3,
a) β for AMZN = 0.9 E(r) =0.01+0.9*(0.08-0.01) = 0.073 Β for GE = 1.47 E(r) =0.01+1.47*(0.08-0.01) = 0.1129
b) Because Rf and Rm remain unchanged while we calculate expected returns, β is a key factor explaining why the expected return of one stock is higher than the others’. If Beta = 1, then the stock is exactly as volatile as the entire stock market. Beta greater than 1 means the stock is more volatile than the market and vice versa. GE has a higher expected return because it has a higher level of market risk, and AMZN has a lower expected return than GE.
4,

a) BAC is one of the examples that show a company’s stock price caused by one of its announcement. Its stock decreased by 1.35% on March 25, 2013, which was caused by the announcement that Bank of America starts to adopt two new compensation policy.
“Bank of America (NYSE:BAC): Bank of America Chief Executive Brian Moynihan will now be