You are considering an investment in the stock market and have identified three potential stocks, they are Shanghai Fosun Pharmaceutical Group (HKG: 2196), China Petroleum & Chemical Corporation (HKG: 386) and Commonwealth Bank (ASX: CBA). The historical prices between 2013 and 2020 in the table below, note that these prices are recorded on the 1st day of the year, for example, 1st of January 2020. Students assume no dividend is distributed during this period and ignore the exchange rate conversion.
Year | Fosun (HKG: 2196) | China Petroleum & Chemical (HKG: 386) | Commonwealth (ASX: CBA) |
2013 | 11.62 | 7.24 | 64.10 |
2014 | 23.85 | 6.18 | 73.83 |
2015 | 28.05 | 6.13 | 88.85 |
2016 | 18.54 | 4.33 | 78.67 |
2017 | 25.9 | 6.21 | 81.66 |
2018 | 45.45 | 6.76 | 78.87 |
2019 | 23.85 | 6.57 | 69.91 |
2020 | 20.9 | 4.13 | 85.26 |
1. Calculate the return and risk (standard deviation) of each stock.
2. Explain the relation (positive or negative) between risk and return based on your answers in part (1).
3.
Calculate the correlation coefficient between (a) Fosun and China Petroleum and (b) China Petroleum and CBA
4. Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 50% in Fosun and 50% in China Petroleum.
5.Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 40% in CBA and 60% in Fosun.
6.Which portfolio (parts 4 or 5) provides better diversification? Explain your answer(s).
You are considering an investment in the stock market and have identified three potential stocks, they are Crown (ASX: CWN), Tencent (HKG: 0700) and Commonwealth Bank (ASX: CBA). The historical prices for the past 10 years are shown in the table below. Assume no dividend is distributed during this period.YearCrownTencentCommonwealth (CBA)20107.7629.0453.6320118.5740.4052.1520128.0937.9450.39201311.5954.2864.10201416.68108.7073.83201513.6113288.85201612.27144.9078.67201711.4204.4081.66201813.25463.6078.87201911.9534669.911. (6 marks)Calculate the return and risk (standard deviation) of each stock. 2. (3 marks)Explain the relation (positive or negative) between risk and return based on your answers in part (1). 3. ...
EXTRA RISK PROBLEMS Stock A Stock B Expected Return 10% 16% Standard Deviation Correlation coefficient with the Market Correlation coefficient with Stock B Risk free rate 25% Expected return on the Market 12% Standard deviation of the Market 18 1. What is the expected return on a portfolio comprised of $6000 of Stock A and $4000 of Stock B? 2. What is the Standard deviation of this portfolio? 3. Does it make sense to combine these two in this way?...
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Historical Realized Rates of Return Stocks A and B have the following historical returns: Year 2012 -23.00% -17.10% 2013 26.00 27.00 2014 10.75 20.80 2015 -2.25 -13.60 2016 31.50 25.90 Calculate the average rate of return for each stock during the 5-year period. Round your answers to two decimal places. Stock A % Stock B % Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate...
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Question 1: Cooley Company's stock has a beta (b) of 1.28, the risk-free rate (rRF) is 1.25%, and the market risk premium (RPM) is 5.50%. a. What does the beta measure? Give a short answer in 1 sentence. b. What is market risk premium? Give a short answer in 1 sentence. c. Calculate the firm's required rate of return? Show the step-by-step calculation and circle your answer. (Hint: Required return = rRF + b(RPM)) Question 2: Consider the following information...
REALIZED RATES OF RETURN Stocks A and B have the following historical returns: Stock B's Returns, rs Stock A's Returns, rA Year - 13.50 % -15.00% 2011 19.60 31.75 2012 32.10 12.00 2013 -10.80 -4.00 2014 24.85 27.50 2015 a. Calculate the average rate of return for stock A during the period 2011 through 2015. Round your answer to two decimal places. % Calculate the average rate of return for stock B during the period 2011 through 2015. Round your...
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