The homework must be done with MS Excel (IF YOU PREFER TO WRITE IN A WORD FILE, YOU MUST ATTACH YOUR EXCEL WORKSHEET)
2. You need to write down all necessary steps/formulas leading to your results. Providing me with only the final answer will not receive any credit
3. Assignment must be submitted in MS Excel format. Do not paste in TXT format in the area below the Title.
Assignment Five
1.
Year ECB WCB
2004 40.00% 40.00%
2005 -10.00% 15.00%
2006 35.00% -5.00%
2007 -5.00% -10.00%
2008 15.00% 35.00%
a. What is the expected return and risk of each stock?
b. Measured by the standard deviation of returns, by how much would your uncle's risk have been reduced if he had held a portfolio consisting of 60% in ECB and the remainder in WCB? In other words, what is the difference between portfolio's standard deviation and weighted average of components' standard deviations? (Hint: check the example on page 11-12 on my note).
2. Economic
Conditions Prob. Return
Strong 30% 32.0%
Normal 40% 10.0%
Weak 30% -16.0%
4. Stock Investment Beta
A $150,000 1.40
B 50,000 0.80
C 100,000 1.00
D 75,000 1.20
What is the portfolio's beta?