Download Key to Finance - Quiz 5 - Spring 2008 | FIN 4360 and more Quizzes Finance in PDF only on Docsity! Key to Finance 4360; Quiz 5; Spring 2008; 1:00 Class Note: For any question with numbers, all of the points are earned by setting up solutions. There are no points for any calculations. As a result, you will likely earn a higher grade on this quiz if you simply set up problems but never touch your calculator. “Setting up solutions” may involve writing a single number. 1. Given the following return distribution of possible returns on Ford, calculate the expected return on Ford. Probability Return .2 19% .5 7% .3 -30% E(R) = .2(19) + .5(7) + .3(-30) 2. Assume that you have the amounts and dates of dividends paid by Sears over the last 12 months. You also have the stock prices today, a year ago, and at each of the dividend dates. How would you calculate the annual return on Sears over the past year assuming no reinvestment of dividends? You should list the step or steps you would need to use. Find the rate that sets the present value of inflows equal to the present value of outflows Inflows = dividends and ending price Outflows = initial price Use the following information to answer questions 3, 4, and 5. Unilever Alcoa Risk-free Expected Return 15% 18% 5% Volatility 31% 46% 0% The correlation between Unilever and Alcoa is 0.2 3. If you short-sell $100,000 of Unilever and invest $600,000 in Alcoa, set up to calculate the expected return on your portfolio? 000,600000,100 000,100 Ux ; 000,600000,100 000,600 Ax 1815 AUP xxRE Combine 4 and 5 on same graph, clearly label which is which 4. Sketch a graph of the expected returns and volatilities you could achieve for combinations of Unilever and Alcoa (including short and long positions in each). Identify the portfolio you created in #3. 5. On the same graph you used to answer #4, identify the portfolio of Unilever and Alcoa that gives you the highest Sharpe ratio. Based on your graph, how would you need change your investments in Alcoa to achieve this portfolio?
