Finc 3155 Business Finance Homework Assignment Questions

Question

Finc 3155 Business Finance homework assignment questions and calculations Six months ago, you purchased 1,200 shares of ABC stock for $21.30 a share. You have received dividend payments equal to $0.60 a share. Today, you sold all of your shares for $22.70 a share. What is your total dollar return on this investment? What is your rate of return over this six-month holding period? A stock had returns of 6%, -2%, 4%, and 16% over the past four years. What is the standard deviation of this stock for the past four years? What are the arithmetic and geometric average returns for a stock with annual returns of 21%, 8%, -32%, 41%, and 5%? What is the expected return on a portfolio which is invested 20% in stock A, 50% in stock B, and 30% in stock C? The expected returns on A, B, and C are 25%, 20%, and 8% respectively. The risk-free rate of return is 4% and the market risk premium is 8%. What is the expected rate of return on a stock with a beta of 1.8? Your portfolio is comprised of 30% of stock X, 50% of stock Y, and 20% of stock Z. Stock X has a beta of 0.6, stock Y has a beta of 1.4, and stock Z has a beta of 1.2. What is the beta of your portfolio?

Dr. Jack HW Helper · Accepted Answer

Total Dollar Return and Rate of Return for ABC Stock The initial investment involved purchasing 1,200 shares of ABC stock at $21.30 per share, leading to an initial investment of $25,560 (1,200 x $21.30). Dividend payments received amount to $0.60 per share, totaling $720 (1,200 x $0.60). The shares were sold at $22.70 per share, earning $27,240 (1,200 x $22.70). To compute the total dollar return, sum the capital gains and dividends: Capital Gain: ($22.70 - $21.30) x 1,200 = $1.40 x 1,200 = $1,680 Dividends: $720 Total Dollar Return: $1,680 + $720 = $2,400 The rate of return over six months can be calculated as the total dollar return divided by the initial investment: Rate of Return = $2,400 / $25,560 ≈ 0.0938 or 9.38% This 9.38% represents the six-month return. To annualize, assuming no additional contributions and reinvesting, multiply by 2 for a rough estimate which gives approximately 18.76% per year. Standard Deviation of Stock Returns The past four years' returns are 6%, -2%, 4%, and 16%. The mean return is: Mean = (6% + (-2%) + 4% + 16%) / 4 = 24% / 4 = 6% Calculating the variance involves summing the squared deviations from the mean, divided by the degrees of freedom: (6% - 6%)^2 = 0 (-2% - 6%)^2 = (-8%)^2 = 0.0064 (4% - 6%)^2 = (-2%)^2 = 0.0004 (16% - 6%)^2 = (10%)^2 = 0.01 Variance = (0 + 0.0064 + 0.0004 + 0.01) / 3 ≈ 0.0056 Standard deviation = √0.0056 ≈ 0.075 or 7.5% Arithmetic and Geometric Average Returns The arithmetic mean return is: (21% + 8% + (-32%) + 41% + 5%) / 5 = (43%) / 5 = 8.6% The geometric mean return is calculated as: GMR = [(1 + 0.21) x (1 + 0.08) x (1 - 0.32) x (1 + 0.41) x (1 + 0.05)]^(1/5) - 1 Calculating step-by-step: Product = 1.21 x 1.08 x 0.68 x 1.41 x 1.05 ≈ 1.21 x 1.08 ≈ 1.3088 1.3088 x 0.68 ≈ 0.8904 0.8904 x 1.41 ≈ 1.2550 1.2550 x 1.05 ≈ 1.3178 GMR = (1.3178)^(1/5) - 1 ≈ 1.0567 - 1 = 0.0567 or 5.67% Expected Return on a Portfolio The expected return is the weighted sum of individual stocks' expected returns: = 0.2 x 25% + 0.5

Finc 3155 Business Finance Homework Assignment Questions ✓ Solved

Finc 3155 Business Finance homework assignment questions and calculations

Sample Paper For Above instruction

Total Dollar Return and Rate of Return for ABC Stock

Standard Deviation of Stock Returns

Arithmetic and Geometric Average Returns

Expected Return on a Portfolio

Expected Return Using Capital Asset Pricing Model (CAPM)

Portfolio Beta Calculation

References