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    1.+returns+exercise 1 2021 1 - 1 - 1

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    sanchi
    The document provides information and calculations for several investment scenarios including: 1) A bond purchased in 2017 and sold in 2020, with an annual holding period return of -4.66% 2) Stock prices of XYZ Industries from 2014 to 2019, with an overall holding period return of 80% and annual holding period yield of 12.47% 3) Expected and realized returns given economic conditions and probabilities, with an expected annual return of 6% and standard deviation of 6.25% 4) Real rates of return for T-bills and bonds given inflation of 1.5%, at 1.23% and 3.2% respectively. 5) A 90% confidence interval for a

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    1.+returns+exercise 1 2021 1 - 1 - 1

    Uploaded by

    sanchi
    30 views3 pages
    The document provides information and calculations for several investment scenarios including: 1) A bond purchased in 2017 and sold in 2020, with an annual holding period return of -4.66% 2) Stock prices of XYZ Industries from 2014 to 2019, with an overall holding period return of 80% and annual holding period yield of 12.47% 3) Expected and realized returns given economic conditions and probabilities, with an expected annual return of 6% and standard deviation of 6.25% 4) Real rates of return for T-bills and bonds given inflation of 1.5%, at 1.23% and 3.2% respectively. 5) A 90% confidence interval for a

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    financial markets retunes exercise questions and answers

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    1.+returns+exercise-1-2021-1_1_-1

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    The document provides information and calculations for several investment scenarios including: 1) A bond purchased in 2017 and sold in 2020, with an annual holding period return of -4.66% 2) Stock prices of XYZ Industries from 2014 to 2019, with an overall holding period return of 80% and annual holding period yield of 12.47% 3) Expected and realized returns given economic conditions and probabilities, with an expected annual return of 6% and standard deviation of 6.25% 4) Real rates of return for T-bills and bonds given inflation of 1.5%, at 1.23% and 3.2% respectively. 5) A 90% confidence interval for a

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views3 pages

    1.+returns+exercise 1 2021 1 - 1 - 1

    Uploaded by

    sanchi
    The document provides information and calculations for several investment scenarios including: 1) A bond purchased in 2017 and sold in 2020, with an annual holding period return of -4.66% 2) Stock prices of XYZ Industries from 2014 to 2019, with an overall holding period return of 80% and annual holding period yield of 12.47% 3) Expected and realized returns given economic conditions and probabilities, with an expected annual return of 6% and standard deviation of 6.25% 4) Real rates of return for T-bills and bonds given inflation of 1.5%, at 1.23% and 3.2% respectively. 5) A 90% confidence interval for a

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    1.

    Assignment on Returns

    USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

    Suppose you bought a GM corporate bond on January 25, 2017 for $750, on January 25, 2020 sold it for
    $650.00.

    . What was your annual holding period return?

    HPR = Ending Value/Beginning Value = $650.00/$750 = 0.8667

    Annual HPR = (HPR)1/n = (0.8667)1/3 = 0.9534

    2. What was your annual holding period yield?

    HPR = Ending Value/Beginning Value = $650.00/$750 = 0.8667

    Annual HPR = (HPR)1/n = (0.8667)1/3 = 0.9534

    Annual HPY = Annual HPR − 1 = 0.9534 − 1 = −0.0466 = −4.66%

    USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

    The common stock of XYZ Inc. had the following historic prices.

    Time Price of XYZ


    3/01/2014 50.00
    3/01/2015 47.00
    3/01/2016 76.00
    3/01/2017 80.00
    3/01/2018 85.00
    3/01/2019 90.00

    3 . What was your holding period return for the time period 3/1/2014 to 3/1/2019

    HPR = Ending Value/Beginning Value = 90/50 = 1.8

    4. . What was your annual holding period yield (Annual HPY)?

    Annual HPR = (HPR)1/n = (1.8)1/5 = 1.1247

    Annual HPY = Annual HPR − 1 = 1.1247 − 1 = 0.1247 = 12.47%


    Time Price of XYZ Return HPR
    3/01/2014 50
    3/01/2015 47 −0.0600 0.9400
    3/01/2016 76 0.6170 1.6170
    3/01/2017 80 0.0526 1.0526
    3/01/2018 85 0.0625 1.0625
    3/01/2019 90 0.0588 1.0588

    5. What was your arithmetic mean annual yield for the investment in XYZ Industries.

    Arithmetic Mean =

    6. . What was your geometric mean annual yield for the investment in XYZ
    You should get 12.47%
    (.94 * 1.6170 * 1.0526*1.0625*1.0588) ^ 1/5

    Exhibit 1.4
    USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

    You have concluded that next year the following relationships are possible:

    Economic Status Probability Rate of Return


    Weak Economy .15 −5%
    Static Economy .60 5%
    Strong Economy .25 15%

    7 . What is your expected rate of return [E(Ri)] for next year?

    E(Ri) = (0.15)(−5) + (0.60)(5) + (0.25)(15) = 6%

    8.. Compute the standard deviation of the rate of return for the one year period.

    = [(0.15)(−5 − 6)2 + (0.60)(5 − 6)2 + (0.25)(15 − 6)2]1/2 = 6.25%

    9. . Compute the coefficient of variation for your portfolio.

    CV = Standard Deviation of Returns/Expected Rate of Return


    = 6.25/6 = 1.04
    USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

    Assume that during the past year the consumer price index increased by 1.5 percent and the securities
    listed below returned the following nominal rates of return.

    U.S. Government T-bills 2.75%


    U.S. Long-term bonds 4.75%

    10 . What are the real rates of return for each of these securities?

    Real rate on T-bills = (1.0275/1.015) − 1 = 0.0123 = 1.23%

    Real rate on bonds = (1.0475/1.015) − 1 = 0.032 = 3.2%

    11. Suppose the 90% confidence interval value is the conventional 1.645

    What are the forecasted stock prices for a stock currently selling for $10 that has a average return of 8% and a
    volatility (sigma ) of 20%.

    You should get an answer of approximately (rounded) $7.80 to 15.05

    (Done in class as a participation exercise )

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