ch4sol - CHAPTER 4 THE BASICS OF RISK Problem 1 Year Price...

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CHAPTER 4 THE BASICS OF RISK Problem 1 Year Price Annual Return 1989 1.2 1990 2.09 0.741667 1991 4.64 1.220096 1992 5.34 0.150862 1993 5.05 -0.05431 1994 7.64 0.512871 1995 10.97 0.435864 1996 20.66 0.883318 1997 32.31 0.563892 1998 69.34 1.146085 average 0.622261 a. The average annual return is 62.23% b. The standard deviation is 42.49% The variance is 0.1805 c. No. The firm is changing its business mix, is under increasing assault for monopolistic practices and is accumulating cash. I would expect all of these factors to change its risk profile. Problem 2 Year Price DividendsReturn 1989 36.1 3 1990 33.6 3 1.39%
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Dividend Discount Models 2 1991 37.8 3 21.43% 1992 30.9 2.3 -12.17% 1993 26.8 1.6 -8.09% 1994 24.8 1.6 -1.49% 1995 31.6 1.6 33.87% 1996 28.5 1.6 -4.75% 1997 24.25 1.6 -9.30% 1998 35.6 1.6 53.40% average 8.25% std 22.84% variance 0.0521 a. The average annual return is 8.25% b. The standard deviation is 22.84%, and the variance is 0.0521 c. I would not expect the same variance and standard deviation of returns because utilities have become much more deregulated today and face a lot of competition. Problem 3 Year Scientific Atlanta 1989 80.95 58.26 1990 -47.37 -33.79 1991 31 29.88 1992 132.44 30.35 1993 32.02 2.94 1994 25.37 -4.29 1995 -28.57 28.86 1996 0 -6.36 1997 11.67 48.64 1998 36.19 23.55 average 27.37 17.804 s.d. 51.36 27.89 covariance 774.48
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Dividend Discount Models 3 correlation 0.54 a. The average return over the ten years is 27.37% for Scientific Atlanta and 17.8% for AT&T. The standard deviations are 51.36% and 27.89% respectively.
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ch4sol - CHAPTER 4 THE BASICS OF RISK Problem 1 Year Price...

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