1)

a) Computation of Realized Return:

Realized Return = (Sales Price - Purchase Price + Dividend)/Purchase Price

 = ($55 - $50 + $1)/$50

Realized Return = $6/$50 = 12.00%

 

b) Computation of Dividend Yield:

Dividend Yield = Annual Dividend/Purchase Price

= $1/$50 

Dividend Yield = 2.00%

 

c) Computation of Capital Gain Yield:

Capital Gain Yield = (Sales Price - Purchase Price)/Purchase Price

 = ($55 - $50)/$50 

Capital Gain Yield = 10.00%

 

2) 

a) Computation of Expected Return:
Expected Return		=	Sum of (Probability*Return on Probability)
Expected Return		=	(10%*-25%)+(20%*-10%)+(15%*0%)+(25%*10%)+(30%*25%)
		=	5.500%
b) Computation of Standard Deviation:
Standard Deviation		=	Variance of return ^(1/2)
Step-1:	Calculate Variance:
a		b		c		d=b-c	e=D^2	f=e*a
Probability		Return		Expected Return
10%		-25%		5.50%		-30.50%	9.30%	0.93%
20%		-10%		5.50%		-15.50%	2.40%	0.48%
15%		0%		5.50%		-5.50%	0.30%	0.05%
25%		10%		5.50%		4.50%	0.20%	0.05%
30%		25%		5.50%		19.50%	3.80%	1.14%
	Variance							2.65%
Step-2:Calculate Standard Deviation
Standard Deviation		=	Variance of return ^(1/2)
		=	2.65%^(1/2)
		=	16.27%

 

 

3) 

a) Computation of Average Annual Return:

Average Annual Return =Total Return/Total Number of Periods

= (-4%+28%+12%+4%)/4

Average Annual Return = 10%

 

b) Computation of Variance of Stock Returns:

Variance of Stock Returns = Total (Return-Average Return)^2/(Time Period-1)

Here,

Return	(Return-Average Return)^2
-4	(-4%-10%)^2=0.0196
28	(28%-10%)^2=0.0324
12	(12%-10%)^2=0.0004
4	(4%-10%)^2=0.0036
	Total = 0.056

 

Variance of Stock Returns = 0.056/(4-1)

=0.056/3

Variance of Stock Returns = 0.01867

 

c) Computation of Standard Deviation:

Standard Deviation = Variance^(1/2) 

= 0.01867^(1/2)

Standard Deviation = 0.1366 or 13.66%

 

 

4) 

(a) Computation of Portfolio Weights of Apple in Portfolio:

Investment in Apple = Number of Shares * Share Price

= 600*$500

Investment in Apple = $300,000

 Investment in Cisco = 10,000*$20=$200,000

Investment in Colgate = 5000*$100=$500,000

Total Investment = 300,000+200,000+500,000 = $1,000,000

 

Weight of Apple = Investment in Apple / Total investment

 = 300000/$1,000,000

 = 0.3 or 30%

Weight of Cisco= Investment in Cisco / Total investment

= 200000/$1,000,000

= 0.2 or 20%

 

Weight of Colgate = Investment in Colgate / Total investment

= 500000/$1,000,000

= 0.5 or 50%

 

(b) Computation of Expected Return of Portfolio:

Expected Return of Portfolio = Weight of Apple * Expected Return of Apple + Weight of Cisco*Expected Return of Cisco + Weight of Colgate * Expected Return of Colgate

=(0.3*12%)+(0.2*10%)+(0.5*8%)

Expected Return of Portfolio = 9.60%

 

(c) Computation of Weights of Portfolio at New Prices:

Investment in apple when price goes up =600*(500+25)=$315,000

Investment in Cisco=10,000*(20+5)=$250,000

Investment in Colgate =5000*(100-13)=$435,000

Total Investment= 315,000+250,000+435,000=$1,000,000

 

Weight of Apple = 315,000/$1,000,000=31.50%

Weight of Cisco=250,000/$1,000,000=25%

Weight of Colgate = 435000/$1,000,000=43.50%

 

(d) Computation of Expected Return of portfolio at New Prices:

Expected Return of portfolio at New Prices = (0.3150*12%)+(0.25*10%)+(0.4350*8%) = 11.61%