Answer Happy

Question 1










[7]
1.1. Calculate the arithmetic and
geometric mean return for a stock with four-year annual returns of
-7%, 10%, 50%, 15%.








(2)
1.2. Calculate the standard deviation of annual investment
returns, given the returns are –20.6%,
–37.5%, 59.4%, and
33.8%.







(2)
1.3. Suppose an investor wishes to
combine a T-bill, which offers the risk free rate of 4.1%, and
shares in HPQ Inc. HPQ has an expected return of 11% and a
standard deviation of 22%. The portfolio is to be comprised
of 50/50 split between the T-bill and HPQ. Calculate the
portfolio expected return
and standard
deviation.




(3)
Standard deviation = 11%
Question 2









[10]
2.1. An investor wishes to invest R15 000 in ABC Inc. which has
a beta (β) which is half the market β and R20
000 in GB Corporation which has a β of 2.5. What is the
beta of the portfolio?
(2)
2.2. Using the CAPM and SML, what is the expected rate of return
for an investment with a β of
1.8, a risk free rate of return of 4%,
and a market rate of return of 10%?



(1)
2.3. The following information is from:
Your
Portfolio
The Market
Return
12%
ALSI return
10%
Standard Deviation
14%
Standard Deviation
12%
Beta
1.2
Risk-free rate
4%
Calculate Sharpe’s ratio and
the Treynor Measure for both Your Portfolio and The Market and
compare
them.
(7)
Question 3









[3]
Explain the characteristics of firm-specific risk. How
might an investor limit his or her exposure to this type of
risk?