1. From the information below, compute the average annual return

1. From the information below, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.
ASSET ANNUAL RETURNS
A 5%, 10%, 15%, 4%
B 2 6%, 20%, 2%, 2 5%, 10%
C 12%, 15%, 17%
D 10%, 2 10%, 20%, 2 15%, 8%, 2 7%

2. Based upon your answers to question 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?

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7. Find the real return, nominal after-tax return, and real after-tax return on the following:
STOCK NOMINAL RETURN INFLATION TAX RATE
X 13.5% 5% 15%
Y 8.7% 4.7% 25%
Z 5.2% 2.5% 28%
9. Using the information below, compute the percentage returns for the following securities:
SECURITY

PRICE
TODAY
RoadRunner $20.05
Stock
Wiley Coyote $33.42
stock
Acme longterm

PRICE ONE DIVIDENDS INTEREST
YEAR AGO RECEIVED RECEIVED
$18.67
$0.50
$45.79

$1.10

bonds
Acme short
termbonds
Xlingshot
Stock

$1,015.38

$991.78

$996.63
$989.84
$5.43 $3.45

$100.00
$45.75
$0.02

10. Given her evaluation of current economic conditions, Ima Nutt believes there is a 20 percent probability of recession, a 50 percent chance of continued steady growth, and a 30 percent probability of infl ationary growth. For each possibility, Ima has developed an interest rate forecast for long-term Treasury bond interest rates:
ECONOMIC INTEREST RATE
FORECAST FORECAST
Recession 6 percent
Constant growth 9 percent
Infl ation 14 percent
a. What is the expected interest rate under Ima’s forecast?
b. What is the variance and standard deviation of Ima’s interest rate forecast?
c. What is the coeffi cient of variation of Ima’s interest rate forecast?
d. If the current long-term Treasury bond interest rate is 8 percent, should Ima consider purchasing a Treasury bond? Why or why not?

11. Ima is considering a purchase of Wallnut Company stock. Using the same scenarios and probabilities as in problem 10, she estimates Wallnut’s return is 2 5 percent in a recession, 20 percent in constant growth, and 10 percent in infl ation.
a. What is Ima’s expected return forecast for Wallnut stock?
b. What is the standard deviation of the forecast?
c. If Wallnut’s current price is $20 per share and Wallnut is expected to pay a dividend of $0.80 per share next year, what price will Ima expect Wallnut to sell for in one year?