I purchased a stock for $10 one year ago, and I received $1 dividend

1) I purchased a stock for $10 one year ago, and I received $1 dividend and the market price of the stock is $9 today. What is my holding period return over the last year?

2) Stock A is expected to have a return of either 15% or 5% tomorrow with the same likelihood. What is the expected return and risk (measured by the standard deviation) of Stock A? Suppose the risk free rate over tomorrow is 8%, what is the Sharpe Ratio of Stock A?

3) I want to pick two stocks from three stocks: stocks A, B and C. The returns of A and B are positively correlated, B and C are independent, and A and C are negatively correlated. If my goal is to maximize my investment’s Sharpe Ratio, which two should I choose?

4) Risk free rate is 5%. Stock A’s expected return is 15% and its standard deviation is 10%. If I want to construct a portfolio with Stock A and a risk free asset so that the portfolio’s standard deviation is 5%, what percentage of my wealth should be spent on Stock A?

5) Following question 4, if I observe Stock B, whose expected return and standard deviation are 20% and 16% respectively, which stock, A or B, should I choose to construct a 5% standard deviation portfolio together with the risk free asset? Why?

Here’s the SOLUTION

This entry was posted in Homework Help. Bookmark the permalink.

Comments are closed.