IF Homework Set 5

IF Homework Set 5 - BUSFIN 1030 Introduction to Finance...

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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 per-share regular dividend on Thursday, September 10, 2009. a. Ignoring transaction costs what was the 7-day 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 state-based returns of securities A and B, the risk-free 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 Risk-free 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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