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Midterm2_spring08

# Midterm2_spring08 - Question 1 You are working at the...

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Question 1 You are working at the Research Division of Rosario, Cho and Lang. Because this is your first assignment in this division, you were asked to do a simple job. Below is the historical information on the stock of Regular Inc. one of the stocks the Division is making a study on. Year Price Dividend 2007 \$67.21 \$0.81 2006 \$56.09 \$0.72 2005 \$47.24 \$0.63 2004 \$51.19 \$0.60 2003 \$49.07 \$0.55 2002 \$43.12 ------ Note: the prices are ex-dividend prices. This means the price was calculated immediately after the dividend of the year was paid. a) Find the Annual Returns for Regular Inc. Note: If you were not able to solve part a) assume a series of returns of 15%, 5%, -10%, 20% and 25% b) Find the Average Return of Regular Inc. for the period in question. c) Find the Standard Deviation of those Returns for the period in question.

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Question 2 Rosario, Cho and Lang have a very strong Research Department. They have created a Forecast Model that is able to detect any future mispricing with almost 100% accuracy. Therefore, their forecast of returns is extremely reliable.

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