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%