Risk and Rates of Return Worksheet
SHOW YOUR WORK AND UNDERLINE YOUR ANSWER FOR EACH OF THE FOLLOWING PROBLEMS
1. In January 4, 2016 the S&P 500 closed at 2,012.66 points. In February 26 of the same year it closed at 1,948.05. What was the return of the market in that period of time?
2. Use the following table to choose the investment that is better compensating investors for the risk they are taking. (Use Sharpe ratio). The risk free rate is 3%.
|
Stock
|
Expected return
|
Standard Deviation
|
|
A
|
10%
|
5%
|
|
B
|
8%
|
10%
|
|
C
|
13%
|
8%
|
3. You want to create a portfolio that will include 3 stocks. Stock A has an expected return of 8%, stock B has an expected return of 5%, and stock C has an expected return of 3%. What is your expected portfolio return if you invest 20%, 30%, and 50%, respectively, of your money in each stock?
4. Walmart's beta is .28. What is Walmart's required return if the market return is 10% and the risk free rate is 6%?
5. Facebook's beta is 1.85. What is its required return if the market risk premium is 4% and the risk free rate is 2%?
6. An individual has $300,000 invested in a stock with a beta of 1.1; $250,000 invested in a stock with a beta of 1.4; $120,000 in a stock with a beta of 0.5; and $500,000 in a stock with a beta of 0.8. If these are the only investments in her portfolio, what is her portfolio's beta?
7. A stock is expected to earn a 6% return. The stock's beta is 0.7, the risk-free rate is 1% and the market risk premium is 5%. Should you add the stock to your portfolio?