Problems on Risk and Return

1) Using the following returns, calculate the arithmetic average returns, the variances and the standard deviations for X and Y. Year | X | Y | 1 | 8% | 16% | 2 | 21 | 38 | 3 | 17 | 14 | 4 | -16 | -21 | 5 | 9 | 26 |

2) You bought one of the Great White Shark Repellant Co’s 8 per cent coupon bonds one year ago for $1030. These bonds make annual payments and mature six years from now. Suppose you decide to sell your bonds today ,when the required return on the bonds is 7 per cent .If the inflation rate was 4.2 per cent over the past year ,what was your total real return on investment ? 3) A stock has had returns of 3 per cent ,38 per cent , 21 per cent ,-15 per cent ,29 per cent and -13 percent over the last six years. What are the arithmetic and geometric returns for the stock ? 4) A stock has had the following year end prices and dividends .Calculate the arithmetic and geometric returns for the stock ? Year | Price | Dividend | 1 | $60.18 | | 2 | 73.66 | $0.60 | 3 | 94.18 | 0.64 | 4 | 89.35 | 0.72 | 5 | 78.49 | 0.80 | 6 | 95.05 | 1.20 |

Risk Return and Security Market Line 1) Based on the following information , calculate the expected return and standard deviation for the two stocks : Rate of Return if State Occurs State of Economy | Probability of state of economy | Stock A | Stock B | Recession | 0.15 | 0.05 | -0.17 | Normal | 0.65 | 0.08 | 0.12 | Boom | 0.20 | 0.13 | 0.29 |

2) You own a stock portfolio invested 25 per cent in Stock Q , 20 per cent in stock R ,15 per cent in stock S, and 40 percent in Stock T. The betas for these four stocks are 0.84,1.17,1.11 and 1.36 respectively. What is the portfolio beta. 3) A stock has a beta of 1.05,the expected return on the market is 11 per cent , and the risk free