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MGT3412 Fall 2008 Instructor: Dr. Yalamova EXAM 1 (15) 1. If a portfolio earned + 11, -18, +13%, +18% -23%, +34%, and -14% over the last five years, the arithmetic mean return per year is 0.058333…. and the geometric mean return per year is…0.038203………….. 2. The Expected Return for GE is 7.14% and the ER for AT&T is 11.17%. The portfolio expected return of the combination of 40% in GE and 60% in AT&T is: 0.09558 3. If a portfolio earned-1.7%, +1.9% +1.4%, and -1.9% over the last four years, the variance of its return is 4.015833 4. Stock W‘s correlation with the market portfolio is +0.83 and Stock W’s standard deviation of 0.7 The market standard deviation risk is 0.4. The beta of W equals: 1.45 5. You bought 100 shares of stock A at $19.2, received $1.2 per share in dividends, and sold the shares for $25. Your holding period return is (1) 36.46%…..You also bought a stock for $56 per share. Over the next four months, it has monthly returns of 7%, -5%, 5%, and -3%. The value of a share at the end of the fourth month is (2) 57.97…… 6. You have the following variance covariance matrix for the returns of stock (1) and stock (2): ┌ ┐ 17 -6.52 19.3 └ ┘ Find the correlation coefficient between stock 1 and 2: -0.36 7. The standard deviation of Stock A is 13.12, the variance of stock B is 14.42 and the correlation coefficient of stock A and B is ρ = -0.33. What is the covariance between stocks A and B? -16.67 8. Stock A was purchased at 18.55 and the prices recorded at the end of each month are 23.85; 20.2; 19.55; 24.05. What is the average monthly return? Arithmetic: 8.2% Geometric: 6.7% 9 -11 Stock 1, stock 2 and the market historical returns show the following variance/covariance matrix: ┌ ┐ 25 -12.1 9 11.37 6.6 7 └ ┘ (9) What is the beta of stock 1 and 2? 1.62 0.94 (10) What is the beta of a portfolio with 40% in 1 and 60% in 2? 1.3175 (11) What is the correlation coefficient of Stock 1 and Stock 2 returns? 0.8595 12. A jar contains 144 dimes (10c), and 145 nickels (5c) and 102 quarters (25c). What is the expected value of a single observation from this coin population? (hint: First calculate the probabilities picking a dime, a nickel or a quarter.) 12.05882 13. A stock has a beta of 1.15; the market variance is 0.16 and the correlation coefficient is .38. What is the stock’s variance? 1.4654 14. Market variance is 1.69 and stock B beta is 1.2, stock B variance is 2.56. What is the correlation of the market and stock B returns? 0.975 15. Stock A return is 13.4 and its beta is 1. Stock B beta is 1.8 and the risk free rate is 3.4%. What is the return on stock B? 21.4%