1. an analyst estimates that a common stock has the following
1. An analyst estimates that a common stock has the following probabilities of return depending on the state of the economy:
State of economy Probability Return
Good 0.1 15%
Normal 0.6 13%
Poor 0.3 7%
What is the expected return of the stock?
2. An investment of $232 will increase in value to $268 in three years. What is the annual compound growth rate?
3. You are given the following historical rates of return for two stocks.
Year stock p stock h
1 0.12 0.09
2 0.14 0.11
3 0.03 0.04
4 -0.08 -0.05
5 0.09 0.06
a. Compute the arithmetic and geometric means for each stock.
b. Compute the variance and covariance for each stock.
c. Compute the coefficient of variation for each stock.
4. Over the last year consumer price index went from 139.2 to 143.1. Treasury bonds returned 6.5%, Treasury bills returned 4.75%, and common stock returned 9.25%.
a. Find the rate of inflation over the last year.
b. Calculate the real rate of return for each investment.
5. You wish to buy 1,000 shares of ABC on margin. It is currently selling at $35 a share. How much must you put up in cash if the margin requirement is:
6. Ignoring commissions, calculate the rate of return for your investments in ABC for each margin figure if the stock price you sell is:
7. You buy 200 shares of XXX stock at $30 a share on margin. The initial margin is 60%. The broker charges you a total of $60 in commissions when you open and close your position and there is a 6 percent interest charge on the borrowed funds. Assume this is for one year.
a. Find your HPR if price goes to $35.
b. Find your HPR if the price goes down to $25.
c. If maintenance margin is 35%, find the price at which you will receive a margin call.
8. QQQ is currently selling for $50 a share. You decide to sell 100 shares short. The margin requirement is 55%, and the commission on the sale is $140. The rate of interest on the borrowed funds is 6 percent. The short position was for a period of one year and during the time the stock is short, QQQ pays $1.25 per share dividend. You close the position at $41 and your broker charges you $130. Find the rate of return for the entire transaction.
9. The Arkansas Mutual Fund invests in shares of companies located in the state. Currently there are three companies listed in the fund:
Stock shares price
A 2000 15
B 1500 30
C 2500 20
If the fund has 20,000 shares outstanding, find the NAV.
10. You are considering two mutual funds. The first charges a front end load of 7%, and is expected to earn 14%in the next year. The second charges a redemption fee of 1.25%, and is expected to earn 11%. Which is the better deal?