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Finance Homework Analysis

This document contains 6 questions and answers related to intermediate financial management homework. Question 1 asks about dividend and capital gains yields from an investment in a high yield fund. Question 2 asks about the annual realized return of Amazon stock over 4 quarters. Question 3 asks about the weekly standard deviation of Bear Stearns stock prices over 5 weeks. Question 4 asks about a 67% confidence interval for S&P 500 returns in 2010 based on historical data. Questions 5 and 6 contain additional financial calculations related to portfolio returns, standard deviations, and weights.

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Ana Saggio
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172 views2 pages

Finance Homework Analysis

This document contains 6 questions and answers related to intermediate financial management homework. Question 1 asks about dividend and capital gains yields from an investment in a high yield fund. Question 2 asks about the annual realized return of Amazon stock over 4 quarters. Question 3 asks about the weekly standard deviation of Bear Stearns stock prices over 5 weeks. Question 4 asks about a 67% confidence interval for S&P 500 returns in 2010 based on historical data. Questions 5 and 6 contain additional financial calculations related to portfolio returns, standard deviations, and weights.

Uploaded by

Ana Saggio
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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Intermediate Financial Management Homework Assignment 1

Question 1:
Suppose you invested $98 in the Ishares High Yield Fund (HYG) a month ago. It paid
a dividend of $0.47 today and then you sold it for $99. What was your dividend yield
and capital gains yield on the investment?

ANSWER: Div yld = 0.47 / 98 = 0.48%; cap gain = 99 - 98 = 1; 1 / 98 = 1.02%

Question 2:
Amazon.com stock prices gave a realized return of 5%, -5%, 10%, and -10% over
four successive quarters. What is the annual realized return for Amazon.com for the
year?

ANSWER: 1.05 × 0.95 × 1.10 × 0.9 = 0.9875; 0.9875 - 1 = -1.25%

Question 3:
Bear Stearns' stock price closed at $100, $105, $56, $30, $2 over five successive
weeks. The weekly standard deviation of the stock price calculated from this sample
is:

ANSWER: Average return = (100 + 105 + 56 + 30 + 2) / 5 = 58.6; standard deviation =


((100 - 58.6)^2 + (105 - 58.6)^2 + (56 - 58.6)^2 + (30 - 58.6)^2 + (2 - 58.6)^2)) / (5 - 1)
= $44.43

Question4:
The average annual return over the period 1926-2009 for the S&P 500 is 11.7%, and
the standard deviation of returns is 20.5%. Based on these numbers, what is a 67%
confidence interval for 2010 returns?

ANSWER: 11.7% - (1 × 20.5%) = -8.8%; 11.7% +( 1 × 20.5%) = 32.2%

Question5:
Use the information for the question(s) below.
Consider an economy with two types of firms, S and I. S firms always move together, but I firms move
independently of each other. For both types of firms there is a 70% probability that the firm will have a
20% return and a 30% probability that the firm will have a -30% return. (1)What is the

1
expected return for an individual firm? (2) The standard deviation for the return on an
individual firm is closest to (3) The standard deviation for the return on an portfolio of 20
type S firms is closest to: (4) The standard deviation for the return on a portfolio of 20 type I
firms is closest to:

ANSWER:
(1) expected return = 0.7(20%) + 0.3(-30%) = 5%
(2)standard deviation = = 0.2291

(3) Since all these firms move the same, there is no adjustment to the
standard deviation.
(4) Since all these firms move independently,
stdev = stdev(single firm) / = 0.2291 / = 0.0512

Question6:
A portfolio has three stocks  200 shares of Yahoo (YHOO), 100 Shares of General Motors
(GM), and 50 shares of Standard and Poor's Index Fund (SPY). If the price of YHOO is $30,
the price of GM is $30, and the price of SPY is $130, calculate the portfolio weight of YHOO
and GM.

ANSWER:
Compute the value of each stock in the portfolio by multiplying stock price
by number of shares of each. Compute total portfolio value by adding each
component in part A. Divide YHOO value by portfolio value to compute
weight and similarly for GM. Thus, total portfolio value = 200 × 30 + 100 ×
30 + 50 × 130 = 15,500; weight of YHOO = 6000 / 15,500 = 38.7%; weight of
GM = 3000 / 15,500 = 19.4%.

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