Question 11 uses data from 9/3/08 to 9/3/09 for firms listed below
EXXON-MOBILE
Date
Open High
Low
Close
Volume Adj Close RETURN
9/1/2009 68.93
69.5
67.83
68.26 23667200
68.26 -0.01287
8/3/2009 70.96
71.89
66.09
69.15 21999600
69.15 -0.01158
7/1/2009 70.67
72.79
64.46
70.39 26744900
69.96 0.006764
6/1/2009 70.46
74.83
68.08
69.91 28378500
69.49 0.008124
5/1/2009 67.13
71.39
65.6
69.35 28182500
68.93 0.046455
4/1/2009 67.04
71.15
64.5
66.67 31807000
65.87 -0.0211
3/2/2009
67
71.49
61.86
68.1 44298300
67.29 0.002981
2/2/2009 76.06
80.5
67.9
67.9 44023900
67.09 -0.10773
1/2/2009 80.06
82.73
74.01
76.48 44802100
75.19 -0.04192
12/1/2008 77.89
83.64
72.68
79.83 46656300
78.48 -0.00393
11/3/2008 73.45
81.03
67.54
80.15 54003200
78.79 0.087509
10/1/2008 77.19
81.75
56.51
74.12 62482300
72.45 -0.04558
9/3/2008 77.01
82
71.51
77.66 39056100
75.91
annual
std dev
std dev
0.04807
0.16652
AMAZON
Date
Open High
Low
Close
Volume Adj Close RETURN
9/1/2009 80.74
82.42
77.51
78.46 7012900
78.46 -0.03362
8/3/2009 86.56
88.2
80.25
81.19 5613600
81.19 -0.05329
7/1/2009 84.42
94.4
75.41
85.76 8243100
85.76 0.025102
6/1/2009 78.21
88.56
76.25
83.66 7275900
83.66 0.072702
5/1/2009 80.38
83.6
73.1
77.99 7133700
77.99 -0.03142
4/1/2009 73.02
86.68
71.71
80.52 9217600
80.52 0.096405
3/2/2009 63.94
75.61
59.82
73.44 10754100
73.44 0.133508
2/2/2009 58.57
67.36
58.13
64.79 10435100
64.79 0.101496
1/2/2009 51.35
59.74
47.63
58.82 12192700
58.82 0.147036
12/1/2008
42
54.85
38.82
51.28 9726600
51.28 0.200937
11/3/2008 56.35
58.73
34.68
42.7 12185900
42.7 -0.25402
10/1/2008 71.78
71.99
43.31
57.24 14809100
57.24 -0.2133
9/3/2008 81.4
86.77
61.32
72.76 9975400
72.76
std dev
0.140536
annual
std dev
0.486832
#12
a.
A long-term United States government bond is always absolutely safe in
terms of the dollars received. However, the price of the bond fluctuates as
interest rates change and the rate at which coupon payments received can
be invested also changes as interest rates change. And, of course, the
payments are all in nominal dollars, so inflation risk must also be
considered.
b.
It is true that stocks offer higher long-run rates of return than do bonds,
but it is also true that stocks have a higher standard deviation of return.
So, which investment is preferable depends on the amount of risk one is
willing to tolerate. This is a complicated issue and depends on numerous
factors, one of which is the investment time horizon. If the investor has a
short time horizon, then stocks are generally not preferred.
a.
Unfortunately, 10 years is not generally considered a sufficient amount of
time for estimating average rates of return. Thus, using a 10-year average
is likely to be misleading.
a.
In general, we expect a stock’s price to change by an amount equal to
(beta  change in the market). Beta equal to –0.25 implies that, if the
market rises by an extra 5 percent, the expected change in the stock’s rate
of return is –1.25 percent. If the market declines an extra 5 percent, then
the expected change is +1.25 percent.
b.
“Safest” implies lowest risk. Assuming the well-diversified portfolio is
invested in typical securities, the portfolio beta is approximately one. The
largest reduction in beta is achieved by investing the $20,000 in a stock
with a negative beta. Answer (iii) is correct.
#22