State of Economy Probability Stock A's Return Expect Return

Recession 10% -30% -3.00%

Below Average 20% -2% -0.40%
Average 40% 10% 4.00%
Above Average 20% 18% 3.60%
Boom 10% 40% 4.00%
8.20%
0.082

Probability Stock A's Return

Recession 30%
Average 40%
Above Average 30%
Beta 1.9
Return Rate 4%
Market Risk Premium 9%
Number of Shares 800
Price per share (beginning) $ 3.00
Price per share (ending) $ 3.45
R_(i) 21.1%
Profit $ 0.45
Holding Period Return 15%
State of the Economy Probability Rate of Return Expected Return
Boom 27% 14% 3.7800%
Normal 70% 8% 5.6000%
Recession 3% -11% -0.3300%
9.0500%
Month End Price
January 125 Cost Paid 130
February 138.5
March 132.75
1.021154
2.12%
Beta 2.5
Standard Dev. 20%
Return on Market 15%
Risk Free Rate 4%

r_(i) = 0.315
Risk Premium = 11%
Shares Investment Beta
8,000 $ 16,000 1.3
15,000 $ 48,000 1.8
25,000 $ 96,000 2.2
$ 160,000

Percentage Beta Weight Average Beta

0.1 1.3 0.13
0.3 1.8 0.54
0.6 2.2 1.32
1.99
Return Investment Percentage Weight Average
11.50% $ 165,000 34.02% 3.91%
22.75% $ 85,000 17.53% 3.99%
10.25% $ 235,000 48.45% 4.97%
$ 485,000 100.00% 12.87%

Expected Return 144.50%

 Investment Beta Percentage Invement Beta for Porfolio
Stock A $ 8,000 1.5 40% 0.6
Stock B $ 10,000 1 50% 0.5
Stock C $ 2,000 0.5 10% 0.05
$ 20,000 100% 1.15
Risk Free Rate 3.90%
Risk Premium 6.20%
Beta 1.21
11.402%
Stock Percentage of Portfolio Beta Weighted Average
1 20% 1 0.2
2 30% 0.5 0.15
3 50% 1.6 0.8
Beta of Portfolio 1.15 a)
Risk Free Rate 3%
Market Return 10%
Expect Return 11.05% b)
Period Jazman Solomon
1 $10 $20
2 $12 $25
3 $15 $15

Holding Period Returns 50% -25%

State of the Economy Probability of the states % Return (Cash Flow/Inv. Cost)
Economic Recession 30% 5%
Strong and moderate Economic Growth 70% 15%
Expected Return
Weight Average
1.500%
10.500%
12.000%
Problem 13
1)
Investment $ 10,000
Rate of Return 4% Expect Return (1) 4.0%
Expected Return $ 400

2)
Investment 10000 10000
Possibility 50% 50%
Rate of Return 20% -10% Expect Return (2) 5.0%
1000 -500
500
3)
Investment 10000 10000
Possibility 50% 50%
Rate of Return 5% 0% Expect Return (3) 2.5%
250 0
250
Problem 14
1,3,2
Least to Most Risky
Shares Stock Investment Beta Percentages Weighted Average
8,000 A $ 10,000 1.5 0.2 0.3
15,000 B $ 20,000 0.8 0.4 0.32
25,000 C $ 20,000 1.2 0.4 0.48
$ 50,000
Beta of Portfolio 1.1
Shares 800
Price Per Share
1/1/2013 $5 per share
4/18/2013 $6 per share

Beta 1.2
Risk Free Rate 1%
Risk Premium 10%
Holding Peried Return 20%
Profit Per Share $1
Profit $800
Price (1/1/2013) $4,000
Price (4/18/2013) $4,800