Solving problems using excel

2

>Module 0

5

alculate the investment’s expected return and its standard deviation

TA

0

10.0%

0

return

and

for periods 2 through 4.

Waters

Period

1

2

3

.00

4

Panner

Period
Price

1

2

3

4

SAR per share on April, 1 2021 and sold 12 shares for 28.35 SAR on August 1, 2022.

DATA

DATA

25.35

12

DATA

eta

A

B

C

and Security Market Line

Calculate the expected return on your portfolio. (The expected return of a portfolio equals the weighted average of the indivdiual stocks’ expected returns, where the weights are the percentage invested in each stock).

DATA

Expected

Stock

Beta
Return

1
10.0%
0.95

2

3

0.85

4
25.0%

5.0%

5

1.0%

common stock, which has a beta of 1.25.The risk -free rate is 2 percent, and the market portfolio has an expected return of 13 percent.

Solution:

DATA

2.0%

1.25

.

DATA

a.

ABC Corporation

S&P 500 Index

Returns
Prices

2,025

 Problem 5- 1 Rate of return and standard deviation Porter, Inc. is evaluating a security. C D A Probability Return 0.10 – 10.0% 0.20 5.0% 0. 3 0. 4 25.0% Expected Variance Standard deviation Problem 5-2 Holding Period Returns From the price data tha follow, compute the holding period returns for Waters Panner DATA Price 8.00 10.00 12 14.00 26.00 29.00 30.00 28.00 Problem 5-3: Holding-Period Gain SAR and Return Suppose you purchased 20 shares of Apple stock for 25.35 Calculate the holding-period SAR gain for the shares you sold, assuming no dividends was distributed , and the holding-period rate of return. Solution: HOLDING PERIOD SARS GAIN AND RETURN Purchase price Selling price 28.32 Shares sold Holding-period gain Holding-period return Problem 5-4 CAPITAL ASSET PRICING MODEL Using the Capital Asset Pricing Model, estimate the appropriate required rate of return for the three stocks listed below, given that the risk-free rate is 5 percent and the expected return for the makret is 12 percent. Stock B 0.85 0.95 1.65 Problem 5-5: Portfolio Beta Based on the data below: a. b. Calculate the portfolio beta. Percentage of Portfolio 1 1.0% 2 2.0% 1.25 7.0% 23.0% 12.0% 0.60 20.0% 1.60 Problem 5-6: Required Rate of Return CAPM Compute an appropriate rate of return for ABC Corporation Risk-free rate = Market expected return = 13.0% Beta = Rate of return = Problem 5-7: Expected Return, Standard Deviation Below are the prices for ABC Corporation and the S&P 500 Index a. Calculate the monthyly holding-eriod returns for ABC and the S&P 500 Index. b. What are the average monthly returns and stardard deviations for each? Month Prices May-21 48.55 2,025 Jun-21 48.11 -0.91% 2,024 Jul-21 48.95 1.75% 2,026 Aug-21 50.55 3.27% 2,013 Sep-21 50.82 0.53% 2,014 Oct-21 52.55 3.40% 2,018 Nov-21 53.75 2.28% 2,023 Dec-21 54.05 0.56% Jan-22 47.95 -11.29% 1,995 Feb-22 51.33 7.05% 2,095 Mar-22 51.58 0.49% 2,096 Apr-22 52.42 1.63% 2,088 May-22 53.77 2.58% 2,105

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