61FIN2FMA - FINANCIAL MANAGEMENT
TUTORIAL 7– RISK & RETURN (PART 1)
Question 1: Suppose a stock had an initial price of $75 per share, paid a dividend of $1.20 per share during the
year, and had an ending share price of $86.
A. Compute the percentage total return.
Dividend yield + Capital gains yield = 16.27%
B. What was the dividend yield?
Dividend yield = D/P0 = 1.20/75 = 1.60%
C. What was the capital gains yield?
Capital gains yield = (P1 – P0)/P0 = (86-75)/75 = 14.67%
Question 2: You are thinking of investing in FMT Company. The following table shows the share price at the end of
each of the years. You decide to use the historical realized return as an estimate of future expected return.
a. Calculate the total realized return each year.
R2010 = (14.80 – 13.82)/13.82 = 7.09%
R2011 = (15.24 – 14.80)/14.80 = 2.97%
R2012 = tương tự = -2.36%
R2013 = 6.92%
b. What is the average realized return on the share over this period?
Arithmetic average return (simple average)
r 2010+r 2011+ r 2012+ r 2013
r= =3.66 %
4
1/ n
FV
r =( ) -1
PV
c. What is the historical standard deviation of returns on the share over this period?
( 7.09 %−3.66 )2+ ( 2.97 %−3.66 % )2+ (−2.36 %−3.66 % )2+ (6.92 %−3.66 % )2
σ 2=
4−1
= 0.1972 = 19.72%
σ =4.44 %
(Nếu đề k cho probability thì lấy số stock return trừ 1)
Question 3: A stock’s returns have the following distribution:
Calculate the stock’s expected return, standard deviation, and coefficient of variation.
E(r) = 0.1x(-0.5) + 0.2x(-0.05) +0.4x0.16 + 0.2x0.25 + 0.1x0.6 = 11.40%
2
σ 2=( Rate of return−E ( r ) ) X (P)
= (-50%-11.40%)^2 x 0.1 + (-5% - 11.40%)^2 x 0.2 + … + (60%-11.40%)^2 x 0.1 = 712.44
σ =√ 712.44=26.69 %
Question 4: Stocks X and Y have the following probability distributions of expected future returns.
a. Calculate the expected rate of return for stock X and Y.
E(rx) = 0.1x(-0.1) + 0.2x0.02 + … + 0.1x0.38 = 12%
E(ry) = tương tự = 14%
b. Calculate the standard deviation of expected returns for stock X and Y.
2 2 2 2
σ ( x )=0.1 x (−0.1−12 % ) +0.2 x ( 0.02−12 % ) +…+ 0.1 x ( 0.38−12% ) =148.80
=> σ =12.20 %
Với y cũng tương tự => σ =20.35 %
c. Suppose that you form a portfolio consisting 50% of stock X and 50% of stock Y, calculate the expected
return of the portfolio and the standard deviation of the portfolio.
P x R(x ; y)
Rp là =
2
Question 5: Stocks A and B have the following historical returns:
Year Stock A’s Stock B’s
returns returns
2006 (18.00%) (14.50%)
2007 33.00 21.80
2008 15.00 30.50
2009 (0.50) (7.60)
2010 27.00 26.30
a. Calculate the average rate of return for each stock during the period 2006 through 2010.
−18 %+33 % +15 %−0.5 % +27 %
r A= =11.30%
5
Với stock B tương tự = 11.30%
b. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would the
realized rate of return on the portfolio have been each year? What would the average return on the portfolio
have been during this period?
Portfolio return = (A return + B return)/2
d. Calculate the standard deviation of returns for each stock and for the portfolio.
Stock A:
(−18 %−11.3 % )2 + ( 33 %−11.3 % )2 +…+ ( 27 %−11.3% )2
σ 2( A)= =432.2
5−1
σrA = 20.79% (Giống question 2)
σrB = 20.78%
σrp = 20.13%
e. Calculate the coefficient of variation for each stock and for the portfolio.
σ
Coefficient =
r
=> CVA = 20.79/11.3 = 1.84
CVB =20.78/11.3 = 1.84
CVP = 20.13/11.3 = 1.78
f. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
All three assets have same expected return of 11.3%, portfolio has the lowest standard deviation (least risk)
=> prefer the portfolio.
Question 6: Which investment would a risk-averse investor would be most likely to pick?
Cái đường thẳng mũi tên đen chỉ là Expected return
E(rN) < E(rP)
σrN = σrP
Two shares have the same risk, but share P has higher expected return >>> pick P
Question 7: Which investment would a risk-averse investor would be most likely to pick?
Risk-averse là auto pick cái có lower risk => Standarad deviation lower (là cái đoạn ngang
có mũi tên đen) => lower risk => pick Q
Question 8: Which investment would a risk-averse investor would be most likely to pick?
Giống câu 7 => pick T
Question 9:
A, V has the lowest risk => picked by more risk-averse investor.
W has the highest expected return but more risk => picked by less risk averse investor.
B, U has the highest risk and lowest expected return => least picked by more risk-averse investor.
V has the lowest risk => least picked by (risk lover) investor.
Question 10
A, Pick Y bcuz Y has lowest risk and highest expected return
B, X is least likely to invest bcuz X has lowest expected return and high standard deviation
