Assignment 2 Solution
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
(b)what was the dividend yield? The capital gains yield?
(c)Rework (a) and (b) assuming the ending share price is $83.
2. Using the following returns, calculate the arithmetic average returns, the variances,
and the standard deviations for X and Y.
3. You find a certain stock that had returns of 7 percent, -12 percent, 18 percent, and
19 percent for four of the last five years. If the average return of the stock over this
period was 10.5 percent, what was the stock’s return for the missing year? What is the
standard deviation of the stock’s return?
4. You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an
expected return of 14 percent and Stock Y with an expected return of 10.5 percent. If
your goal is to create a portfolio with an expected return of 12.4 percent, how much
money will you invest in Stock X? In Stock Y?
5. A stock has a beta of 1.35 and an expected return of 16 percent. A risk-free asset
currently earns 4.8 percent.
(a) What is the expected return on a portfolio that is equally invested in the two
(b) If a portfolio of the two assets has a beta of 0.95, what are the portfolio weights?
6. Consider the following information about Stocks I and II:
Rate of return if state occurs
State of economy
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