Risk and Return Questions:

1. The prices for the National Gasworks Corporation for the second quarter of 2012 are given
below. The price of the stock on April 1, 2012 was $130. Find the holding period return for an
investor who purchased the stock on April 1, 2012 and sold it the last day of June 2012.

Month End Price

April $125.00
May 138.50
June 132.75
2. The common stocks of Company L. and Comp. B . are to be combined in a portfolio.
E (RL) = %5
E(RB)= %10
σ L= %12
σ B= %20
WA=WB=%50
Find the expected return and standart deviation levels of this portfolio if the correlation
between returns is
r A,B =1
r A,B=0.5
rA,B =0

3. An investor currently holds the following portfolio:

Amount
Invested
8,000 shares of Stock A$16,000 Beta = 1.3
15,000 shares of Stock B$48,000 Beta = 1.8
25,000 shares of Stock C$96,000 Beta = 2.2

If the risk-free rate of return is 2% and the market risk premium is 7%, then the required return on
the portfolio is ???
4. Use the following data:
Market risk premium = 10%
Risk free rate = 2%
Beta of XYZ stock = 1.6
Beta of PDQ stock = 2.4
Investment in XYZ stock = $15,000
Investment in PDQ stock = $60,000
You have no assets other than your investments in XYZ and PDQ stock.

What is the expected return of your portfolio? Show all work.

5. Assume that you have $100,000 invested in a stock that is returning 14%, $150,000 invested in
a stock that is returning 18%, and $200,000 invested in a stock that is returning 15%. What is
the expected return of your portfolio?
6. You are considering investing in a project with the following possible outcomes:

Probability of Investment
States Occurrence Returns
State 1: Economic boom 18% 20%
State 2: Economic growth 42% 16%
State 3: Economic decline 30% 3%
State 4: Depression 10% -25%

Calculate the expected rate of return and standard deviation of returns for this investment,
respectively.

7. Marble Corp. has a beta of 2.5 and a standard deviation of returns of 20%. The return on the
market portfolio is 15% and the risk free rate is 4%. According to CAPM, what is the required
rate of return on Collectible's stock?