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BUSFIN 1030 – Introduction to Finance
Homework Set 5
1.
Suppose you bought a share of Allegheny Energy at the opening price of $26.02 a share on Friday,
September 4, 2009. You sold the stock on Thursday, September 10, 2009 at the closing price of $25.99 a
share. The company paid out $0.15 pershare regular dividend on Thursday, September 10, 2009.
a.
Ignoring transaction costs what was the 7day HPR of this investment?
b.
What was the APR and the EAR of this investment? (Assume that a year is 364 days.)
2.
Table below presents the statebased returns of securities A and B, the riskfree security and the market
portfolio, where
p
is the probability of each state. Use the information therein to answer
parts a
and
b
.
State
p
Security A
Security B
Riskfree security
Market portfolio
Recession
0.5
4%
48%
2%
6%
Normal
0.4
10%
10%
2%
25%
Boom
0.1
30%
30%
2%
30%
a.
Calculate the expected return and its standard deviation of securities A and B.
b.
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 Fall '08
 ZUTTER

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