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Problem+Set+8

# Problem+Set+8 - E120 Principles of Engineering Economics...

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E120 Principles of Engineering Economics Fall 2010 Problem Set #8 1. Using the data in the table below, calculate the return for investing in Boeing stock from January 2, 2003, to January 2, 2004, assuming all dividends are reinvested in the stock immediately. (Hint: refer to the example about realized returns for GM stock in the textbook) Historical Stock and Dividend Data for Boeing Date Price Dividend 1/2/03 33.88 2/5/03 30.67 0.17 5/14/03 29.49 0.17 8/13/03 32.38 0.17 1/2/04 41.99 2. Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firms will have a 15% return and a 40% probability that the firms will have a -10% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 a. Type S firms? b. Type I firms?

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3. Using the data in the following table, estimate (a) the average return and volatility for each stock, (b) the covariance between the stocks, and (c) optimal weights you will invest in each stock that minimizes the risk according to your estimation.
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Problem+Set+8 - E120 Principles of Engineering Economics...

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