1. Suppose your purchase Netflix stock (NFLX:US) which is currently trading close to $95.00. The probability of NFLX increasing to $105.00 is 35%. The probability of NFLX attaining $100.00 is 40%. There is also a 25% probability that NFLX will fall to $80.00. Determine the expected return on NFLX. In addition, determine the variance and standard deviation of NFLX, which provide some indication of the stock's riskiness or volatility.
2. Suppose you invest $158,000 and buy 2,000 shares of Microsoft (MSFT:US) at $25 per share ($50,000) and 3,000 shares of Pepsi (PEP:US) at $36 per share ($108,000). What are the portfolio weights for MSFT and PEP? If the expected returns are 12% on MSFT stock and 18% on PEP stock, which is the expected return on the investment portfolio?
3. Microsoft Excel spreadsheets are useful for computing statistics: average returns, standard deviation, variance, and coefficient of variation. Below is recent annual stock return data for ExxonMobil (XOM) and Microsoft (MSFT). Using Microsoft Excel, compute the average return, variance, standard deviation, and coefficient of variation on the returns for these stocks. As a risk adverse investor, provide a brief explanation as to which stock you would select for your investment portfolio?
|
Month
|
XOM Monthly Returns
|
MSFT Monthly Returns
|
|
November
|
5.8%
|
10.4%
|
|
October
|
0.1%
|
13.6%
|
|
September
|
7.3%
|
-10.3%
|
|
August
|
-3.3%
|
-13.8%
|
|
July
|
-4.4%
|
-9.3%
|
|
June
|
-1.6%
|
5.5%
|
|
May
|
0.7%
|
2.1%
|
|
April
|
10.7%
|
23.9%
|
|
March
|
-0.1%
|
-7.3%
|
|
February
|
-3.2%
|
-3.4%
|