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Investment Analysis Tutorial Q&A

This document contains sample questions and solutions for a portfolio management tutorial. Question 1 asks to calculate the holding period return (HPR) and holding period yield (HPY) on an investment in Cara Cotton stock that was purchased for $65 per share and sold for $61 per share a year later, with $3 per share in dividends received during that year. Question 2 provides annual returns for two stocks over 5 years and asks to calculate and compare various return measures like the arithmetic mean, standard deviation, coefficient of variation, and geometric mean for each stock. Question 3 gives the possible returns and probabilities for Madison Leather Corp stock and asks to calculate the expected return. Question 4 provides

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167 views2 pages

Investment Analysis Tutorial Q&A

This document contains sample questions and solutions for a portfolio management tutorial. Question 1 asks to calculate the holding period return (HPR) and holding period yield (HPY) on an investment in Cara Cotton stock that was purchased for $65 per share and sold for $61 per share a year later, with $3 per share in dividends received during that year. Question 2 provides annual returns for two stocks over 5 years and asks to calculate and compare various return measures like the arithmetic mean, standard deviation, coefficient of variation, and geometric mean for each stock. Question 3 gives the possible returns and probabilities for Madison Leather Corp stock and asks to calculate the expected return. Question 4 provides

Uploaded by

rosario correia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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FINC712 Portfolio Management & Investment Analysis

Tutorial 1_Q&A

Question 1

On August 15, you purchased 100 shares of stock in Cara Cotton Company
at $65 a share and a year later you sold it for $61 a share. During the year
you received dividends of $3 a share. Calculate the HPR and HPY on your
investment in Cara Cotton.

Question 2

During the past 5 years you owned two stocks that had the following rates of
return:

Year Stock T Stock B


1 0.19 0.08
2 0.08 0.03
3 -0.12 -0.09
4 -0.03 0.02
5 0.15 0.04

a) Calculate the annual arithmetic mean rate of return for each stock.
Which stock is the most desirable by this measure?

b) Calculate the standard deviation of the annual rate of return for stock T.
Knowing that the standard deviation for stock B’s returns is equal to
0.06348, indicate which is the preferable stock by this measure.

c) Compute the coefficient of variation for each stock. According to this


measure of relative risk, which stock is preferable?

d) Compute the geometric mean rate of return for each stock. Discuss the
difference between the arithmetic and the geometric means for each
stock.
FINC712 Portfolio Management & Investment Analysis
Tutorial 1_Q&A

Question 3

You are considering acquiring shares of common stock in the Madison


Leather Corporation. Your rate of return expectations are as follows:

MADISON LEATHER CORP.


Possible rate of return Probability
-0.10 0.30
0.00 0.10
0.10 0.30
0.25 0.30

Calculate the expected return [E(Ri)] on your investment in Madison Leather


Corp.

Question 4

During the past year, you had a portfolio that contained US government T-
bills (short-term government bonds), long-term government bonds and
common stocks. The rates of return on each of them were as follows:

US government T-bills 5.50%


US government long-term bonds 7.50%
US companies common stocks 11.60%

During the year, the consumer price index, which measures the general rise
in prices, went from 160 to 172. Calculate the rate of inflation during this
year. Calculate the real rates of return on each of the investment on your
portfolio based on the inflation rate.

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