Scribd
Upload
25 views

Risk and Return - Exercise

chapter 2

Uploaded by

thuphuong21.rec
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
25 views

Risk and Return - Exercise

chapter 2

Uploaded by

thuphuong21.rec
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

NPV and IRR

1. Assume that Gerhardt Corporation is considering a capital investment of €50 million today that is expected
to return after-tax cash flows of €16 million per year for the next four years plus another €20 million in Year
5. The required rate of return is 10%, what is the NPV of this investment? What is the IRR of this
investment?

2. What is the NPV of this investment given required rate of return of 10%. What is the IRR of this investment?
Create NPV profile for this investment.

3. Projects A and B have similar outlays but different patterns of future cash flows. Project A realizes most of
its cash payoffs earlier than Project B. What is the crossover rate (the interest rate that makes NPVs of both
projects equal)? Is there any conflict between NPV and IRR if the required rate of return is 10% or 20%?

Time 0 1 2 3 4
Project A -200 80 80 80 80
Project B -200 0 0 0 400
Holding period return (HPR)

4. An investor purchased 100 shares of a stock for $34.50 per share at the beginning of the quarter. If the
investor sold all of the shares for $30.50 per share after receiving a $51.55 dividend payment at the end of
the quarter, the holding period return is closest to:

5. An analyst obtains the following annual rates of return for a mutual fund, the fund’s holding period return
over the three-year period is closest to:

6. An analyst follows a stock and records the price over the last 5 trading days as follows. Calculate daily
returns and HPR over the last 5 trading days.

Day Stock A Price Daily return


1 100
2 102
3 101
4 105
5 104

Risk and return of an asset

7. An analyst follows a stock and records the price over the last 5 trading days as follows. Calculate stock
average return, variance, and standard deviation.

Day Stock A Price Daily return


1 100
2 102
3 101
4 105
5 104
Risk and return of a portfolio

A portfolio manager creates the following portfolio.

8. If the correlation of returns between the two securities is 0.40, the expected standard deviation of the
portfolio is closest to:

9. If the standard deviation of the portfolio is 14.40%, the correlation and covariance between the two
securities is equal to:

A portfolio manager creates the following portfolio:

10. If the portfolio of the two securities has an expected return of 15%, the proportion invested in Security 1
is:

11. If the correlation of returns between the two securities is −0.15, the expected standard deviation of an
equal-weighted portfolio is closest to:
12. If the two securities are uncorrelated, the expected standard deviation of an equal-weighted portfolio is
closest to:

A portfolio manager creates the following portfolio:

Security Security weight (%) Expected return (%) Expected variance (%2)
1 50 13 400
2 25 6 81
3 25 15 441

Covariance between (%2)


1 and 2 45
1 and 3 189
2 and 3 38

13. Calculate portfolio expected return, variance and standard deviation.

You might also like