Page 94 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 2: Risk and Return

(c) 500 in the equity stock of Wipro and 500 in the equity stock of Infosys. Notes
(d) 700 in the equity stock of Wipro and 300 in the equity of Infosys.
Which of the above four options would you choose? Why?
14. The return on four stocks X, Y, Z and A over a period of six years has been as follows:

1 2 3 4 5 6
X 10% 12% -8% 15% -2% 20%
Y 8% 4% 15% 12% 10% 6%
Z 7% 8% 12% 9% 6% 12%
A 9% 9% 11% 4% 8% 16%

Calculate the returns on:
(a) A portfolio of one stocks at a time

(b) Portfolios of two stocks at a time
(c) Portfolios of three stocks at a time
(d) A portfolio of all four stocks
Assume equivalent proportional investment.
15. The returns on the equity stocks of TCS limited and the market portfolios over a 12-year
period are given below:
Year Return on auto TCS Ltd. (%) Return on market portfolio (%)
1 15 12
2 -6 1
3 18 14
4 30 24
5 12 16
6 25 30
7 2 -3
8 20 24
9 18 15
10 24 22
11 8 12

(a) Calculate the beta for the stock of TCS Limited.

(b) Established the characteristics line for the stock of TCS Limited.
16. Assume that the current rate on a one-year security is 7%. You believe that the yield on a
one-year security will be 9% one year from now and 10% two years from now. According
to the expectations hypothesis, what should the yield be on a three-year security?
17. RKV is evaluating a security. One-year Treasury bills are currently paying 9.1%. Calculate
the below investment's expected return and its standard deviation. Should RKV invest in
this security?
Probability .15% .30% .40% .15%
Return 15 7 10 5

LOVELY PROFESSIONAL UNIVERSITY 89