Problem set 3 - BNFN 416 Investment Management Problem set...

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Problem set 3 (Reference chapter 5) Q1) A portfolio of nondividend-paying stocks earned a geometric mean return of 5.0% between January 1, 1996, and December 31, 2002. The arithmetic mean return for the same period was 6.0%. If the market value of the portfolio at the beginning of 1996 was $100,000, a) what was the market value of the portfolio at the end of 2002? Q2) Your expectations regarding the stock market as follows: State of the Economy Probability HPR Boom 0.3 44% Normal Growth 0.4 14 Recession 0.3 -16 a) Compute the mean and standard deviation of the HPR on stocks. Q3) Stock company A sells for $40 a share. It is likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: State of the Economy Dividend Stock Price Boom $ 2.00 $50 Normal Growth 1.0 43 Recession 0.50 34 a) Calculate the expected HPR and standard deviation of HPR. All three scenarios are equally likely. 1
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Problem set 3 - BNFN 416 Investment Management Problem set...

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