PracticeSet2Solns

PracticeSet2Solns - Finance 261 Practice Set 2...

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Finance 261 Practice Set 2 – Supplementary Examples Solutions 1. To realise a gross profit of $500 on 200 shares sold short at $7.50, the investor must cover (ignoring transaction costs): 200($7.50) = $1,500 $1,500 - X = $500 profit X is $1000 which must be divided by 200 shares. The answer is $5.00 p .s. 80 3 ) 100 50 90 ( = + + 2. a(i) P = o 3 ) 110 45 95 ( + + P = = 83.33 1 (83. ) 33 80 80 r 1 = = 4.16% (ii) t o = (90c x 100) + (50c x 200) + ($1.00 x 200) = $390 t = (95c x 100) + (45c x 200) + ($1.10 x 200) = $405. 1 390 $ 390 $ 405 $ Return = = 3.85% (b) t o = (90c x 100) + (50c x 200) + ($1.00 x 200(.7)) = $330 t 1 = (95c + 10c)100 + (45c + 6c)200 + (110c)200(.7) = $361 Return = ($361 - $330)/$330 = 9.39% 05 5 . 3. (a) Arithmetic average return of ABC = = 10% 5 . Arithmetic average return of XYZ = = 10% (b) Stock XYZ has the greater dispersion around the mean as evidenced by its larger standard deviation (13.33%). (c) ABC: Geometric mean = [ ] (. )(.)(. )(. )(. ) / 12 11 114 105 101 1 15 −= 9.8%. XYZ: Geometric mean = [ ] (.)(.)(. )()( . ) / 13 11 118 1 092 1 9.2%. 1
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XYZ has the greater dispersion around the mean and the lower geometric mean. The more volatile the stock, the greater is the difference between the arithmetic and geometric means. 4. Year Total Return in AUD % p.a.
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This note was uploaded on 10/17/2010 for the course FF f taught by Professor F during the Spring '10 term at Clayton.

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PracticeSet2Solns - Finance 261 Practice Set 2...

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