WEEK 6 HOMEWORK ASSIGNMENT SET 3

Week 6 Homework Assignment Set 3

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Home Work Set 3

  1. Your investment club has only two stocks in its portfolio. $20,000 is invested in a stock with a beta of 0.7, and $35,000 is invested in a stock with a beta of 1.3. What is the portfolio?s beta?

(Refer problem 6-1)

  1. The market and Stock J have the following probability distributions:

Probability

RM

RJ

0.3

15%

20%

0.4

9

5

0.3

18

13

  1. Calculate the expected rates of return for the market and Stock J.
  2. Calculate the standard deviations for the market and Stock J.

(Refer problem 6.6)

  1. Two investors are evaluating General Electric?s stock for possible purchase. They agree on the expected value of D1D1 and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds stocks for 2 years and the other normally holds stocks for 10 years. On the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for General Electric?s stock. True or false? Ex

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