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Problem+Set+7

# Problem+Set+7 - E120 Principles of Engineering Economics...

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E120 Principles of Engineering Economics Fall 2010 Problem Set #7 1. Suppose a stock had an initial price of \$91 per share, paid a dividend of \$2.40 per share during the year, and had an ending share price of \$102. Compute the percentage total return. 2. You own a portfolio that is 60 percent invested in Stock X, 25 percent in Stock Y, and 15 percent in Stock Z. The expected returns on these three stocks are 9 percent, 17 percent, and 13 percent, respectively. What is the expected return on the portfolio? 3. Based on the following information, calculate the expected return: State of Economy Probability of State of Economy Portfolio Return if State Occurs Recession .20 -.05 Normal .50 .12 Boom .30 .25

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4. Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Stock C Boom .15 .30 .45 .33 Good .45 .12 .10 .15 Poor .35 .01 -.15 -.05 Bust .05 -.06 -.30 -.09 a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio?
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