Investment and Cent Coupon Bonds

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 rate is 5.2 percent .What must be the expected return on this stock ?
4) Consider the following information about three stocks : Rate of Return if State Occurs
State of Economy
Probability of state of