Question 1: Returns on an investment are uncertain. You estimate the likelihood of alternative returns based on the estimated probabilities of possible outcomes:
Outcome Return Estimated Probability of Outcome
1 3% .05
2 7% .25
3 10% .40
4 13% .25
5 17% .05
a. Calculate the expected return.
b. Calculate the standard deviation of the return
Question 2: Dublin Plastics Inc.'s stock is selling for $17.60. Your research suggests it will pay dividends of $2.00 next year and $2.80 the following year, after which its stock price will have peaked at $21.00. You require a return of 20% on similar investment risk. Should you buy now and sell when the price reaches $21.00?
Question 3: A four-stock portfolio is made up as follows:
Stock Current
Value Beta
A $15,300 .5
B $28,700 .9
C $19,600 1.2
D $10,400 1.7
a. Calculate the portfolio's beta
b. How relatively risky is this portfolio? Could the portfolio have more risk? Could the portfolio have less risk? Explain.
Question 4: Given the following information, calculate the required return on MNO Corporation's common stock:
MNO Corp.'s Common Stock Beta (ß) = 0.9
Risk-free rate = 5%
Required return on the overall market = 11%