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

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

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?