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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 Fall '08
 ILAN
 Standard Deviation, Variance, The Return, Engineering Economics Fall, Date price dividend

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