TOPIC 3 RISK AND RETURN

Question 1.1

What is the percentage return on an asset that you purchased for $92, received a dividend of $3.50 and sold it for $97?

Question 1.2

Given the following returns, calculate the expected return and risk for Orange Ltd.

Year 121%

Year 218%

Year 311%

Year 4-10%

Year 5-13%

Question 1.3

A security has the following possible returns. Calculate the expected return and risk.

Probability 0.20, Possible Return 8%

Probability 0.20, Possible Return 15%

Probability 0.10, Possible Return 10%

Probability 0.50, Possible Return 11%

Question 1.4

Given the following information, which investment would you choose? Justify your choice.

Black Ltd: Expected Return 7%, Risk 15%

White Ltd: Expected Return 5%, Risk 12%

Question 1.5

Calculate the beta for the three individual assets and for the market portfolio.

Question 1.6

Calculate the beta of the portfolio below consisting of assets X, Y and Z.

Asset A B Correlation Coefficient Between Asset and Market (pmkt,i) 0.8 0.1 -0.6 1.00 Standard Deviation of Standard Deviation of Asset Market (01) (Omkt) 4% 10% 6% 10% 8% 10% 10% 10% C Market Asset XXN Weight (W) 0.45 0.25 0.30 Beta (Pi) 0.15 0.80 2.20