Holding period and annual? (investment) returns. Baker Baseball? Cards, Inc. originally purchased the rookie card of? Hammerin' Hank Aaron for $ 33.00. After holding the card for 4 years, Baker Baseball Cards auctioned the card for $132.00. What are the holding period return and the simple annual return on this? investment?
|
Investment |
Original Cost of Investment |
Selling Price of Investment |
Distributions Received |
Percent Return |
|
|||||||||||||
|
??CD |
? $500 |
?$540 |
?$0 |
?? |
||||||||||||||
|
??Stock |
?$23 |
?$34 |
?$2 |
?? |
||||||||||||||
|
??Bond |
?$1,040 |
?$980 |
?$80 |
?? |
||||||||||||||
|
??Bicycle |
?$400 |
?$220 |
?$0 |
?? |
||||||||||||||
Holding period and annual? (investment) returns. Bohenick Classic Automobiles restores and rebuilds old classic cars. The company purchased and restored a classic 1957 Thunderbird convertible 6 years ago for $8,500.00. Today at? auction, the car sold for $50,000.00. What are the holding period return and the annual return on this? investment?
Changing risk level. Mr. Malone wants to change the overall risk of his portfolio. ? Currently, his portfolio is a combination of risky assets with a beta of 1.25 and an expected return of 14?%. He will add a? risk-free asset? (U.S. Treasury? bill) to his portfolio. If he wants a beta of 1.00 what percentage of his wealth should be in the risky portfolio and what percentage should be in the? risk-free asset? If he wants a beta of 0.750?If he wants a beta of 0.50? If he wants a beta of 0.25? Is there a pattern? here?
Expected return of a portfolio using beta. The beta of four stockslong dash—?G, ?H, I, and Jlong dash—are 0.41?, 0.88, 1.18 and 1.55 respectively and the beta of portfolio 1 is 1.01?,the beta of portfolio 2 is 0.87 and the beta of portfolio 3 is 1.15 What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of 3.5% ?(risk-free rate) and a market premium of 9.5?% ?(slope of the? line)?
Beta of a portfolio. The beta of four stockslong dash—?P, Q, R, and Slong dash—are 0.63?,0.78?,1.03?, and 1.37,
respectively. What is the beta of a portfolio with the following weights in each? asset?
|
Weight in Stock P |
Weight in Stock Q |
Weight in Stock R |
Weight in Stock S |
|
|||||||||||||||
|
Portfolio 1 |
?25% |
?25% |
?25% |
?25% |
|||||||||||||||
|
Portfolio 2 |
?30% |
?40% |
?20% |
?10% |
|||||||||||||||
|
Portfolio 3 |
?10% |
?20% |
?40% |
?30% |
|||||||||||||||
Comparison of returns. WG Investors is looking at three different investment opportunities. Investment one is a? five-year investment with a cost of ?$790 and a promised payout of ?$1,580 at maturity. Investment two is a? seven-year investment with a cost of ?$790 and a promised payout of ?$2,212. Investment three is a? ten-year investment with a cost of ?$790 and a promised payout of ?$3,792. WG Investors can take on only one of the three investments. Assuming that all three investment opportunities have the same level of? risk, calculate the effective annual return for each? investment, and select the best investment choice
Beta of a portfolio. The beta of four stockslong dash—?G, ?H, I, and Jlong dash—are 0.42?, 0.89, 1.25?, and 1.53?,
respectively. What is the beta of a portfolio with the following weights in each? asset?
|
Weight in Stock G |
Weight in Stock H |
Weight in Stock I |
Weight in Stock J |
|
|||||||||||||||
|
Portfolio 1 |
?25% |
?25% |
?25% |
?25% |
|||||||||||||||
|
Portfolio 2 |
?30% |
?40% |
?20% |
?10% |
|||||||||||||||
|
Portfolio 3 |
?10% |
?20% |
?40% |
?30% |
|||||||||||||||
Benefits of
diversification.
Sally Rogers has decided to invest her wealth equally across the following three assets. What are her expected returns and the risk from her investment in the three? assets? How do they compare with investing in asset M? alone???
Hint?:
Find the standard deviations of asset M and of the portfolio equally invested in assets? M, N, and O.
|
??States |
Probability |
Asset M Return |
Asset N Return |
Asset O Return |
|
|||||||||||||||
|
??Boom |
35?% |
10?% |
20?% |
?2?% |
||||||||||||||||
|
??Normal |
46?% |
7?% |
12?% |
7?% |
||||||||||||||||
|
??Recession |
19?% |
?2?% |
0?% |
10?% |
||||||||||||||||
Expected return. Hull? Consultants, a famous think tank in the? Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 12?%, the probability of a stable growth economy is 19?%, the probability of a stagnant economy is 51?%, and the probability of a recession is 18?%.
Estimate the expected returns on the following individual investments for the coming year.
|
??Investment |
Forecasted Returns for Each Economy |
|
|||||||||||||||||
|
Boom |
Stable Growth |
Stagnant |
Recession |
||||||||||||||||
|
??Stock |
26?% |
10?% |
7?% |
?10?% |
|||||||||||||||
|
??Corporate bond |
10?% |
8?% |
6?% |
4?% |
|||||||||||||||
|
??Government bond |
9?% |
7?% |
5?% |
3?% |
|||||||||||||||
?Hint: Make sure to round all intermediate calculations to at least seven? (7) decimal places. The input? instructions, phrases in parenthesis after each answer? box, only apply for the answers you will type.
Standard deviation. Calculate the standard deviation of U.S. Treasury? bills, long-term government? bonds, and? large-company stocks for 1985 to 19941985 to 1994 from Table 8.1. Which had the highest? variance? Which had the lowest? variance? Click on the Spreadsheet Learning Aid to see Table 8.1long dash—?Year-by-Year Returns, 1950-1999.
?Hint: Make sure to round all intermediate calculations to at least seven? (7) decimal places. The input? instructions, phrases in parenthesis after each answer? box, only apply for the answers you will type.
Returns.
What are the returns on the following? investments???
|
Investment |
Original Cost of Investment |
Selling Price of Investment |
Distributions Received |
Percent Return |
|
|||||||||||||
|
??CD |
? $300 |
?$330 |
?$0 |
?? |
||||||||||||||
|
??Stock |
?$18 |
?$30 |
?$2 |
?? |
||||||||||||||
|
??Bond |
?$1,040 |
?$970 |
?$90 |
?? |
||||||||||||||
|
??Bicycle |
?$410 |
?$220 |
?$0 |
?? |
||||||||||||||
| Investment | Original Cost of investment | Selling Price of Investment | Distributions Received | Percent Return |
| CD | $500.00 | 540 | $0.00 | 8.00% |
| Stock | $23.00 | $34.00 | $2.00 | 56.52% |
| Bond | $1,040.00 | $980.00 | $80.00 | 1.92% |
| Bicycle | $400.00 | $220.00 | $0.00 | -45.00% |
| CD Return % = ($540 +$0 - $500)/$500 | 8.00% | |||
| Stock Percent Return ($34 + $2 - $23)/$23 | 56.52% | |||
| Bond Percent Return = ($980 +$80 - $1040)/$1040 | 1.92% | |||
| Bike Percent Return = ($220 + 40 - $400)/$400 | -45.00% | |||
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