1) You have observed the given returns on INTC Corporation’s stock over past 5 years: -25%, -36%, 9%, 11%, and 17%.
a) Determine the arithmetic average return on stock over this 5-year period?
b) Determine the variance of returns over this period?
c) Find out the standard deviation of returns over this period?
d) Assume the present T-bill rate is 0.15%. Determine the risk premium of owing INTC Corporation’s stock?
e) What range of returns would you expect to see 95% of time?
2) Assume you have $20,000 total. If you put $14,000 in Stock A and remainder in Stock B, what will be the expected return on your portfolio? What will be standard deviation on your portfolio?
State of Economy Probability Return on A Return on B
Recession 0.1 -20% 30%
Normal 0.6 10% 20%
Boom 0.3 70% 50%