essentials of investment 8th edition solution chapter 05

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1、Chapter05-RiskandReturn:PastandPrologueCHAPTER05RISKANDRETURN:PASTANDPROLOGUE1.The1%VaRwillbelessthan-30%.Aspercentileorprobabilityofareturndeclinessodoesthemagnitudeofthatreturn.Thus,a1percentileprobabilitywillproduceasmallerVaRthana5percentileprobability.2.Thegeometricreturnrepresentsacompou

2、ndinggrowthnumberandwillartificiallyinflatetheannualperformanceoftheportfolio.3.No.Sinceallitemsarepresentedinnominalfigures,theinputshouldalsousenominaldata.4.Decrease.Typically,standarddeviationexceedsreturn.Thus,areductionof4%ineachwillartificiallydecreasethereturnperunitofrisk.Toreturntoth

3、eproperriskreturnrelationshiptheportfoliowillneedtodecreasetheamountofriskfreeinvestments.5.E(r)=[0.3´44%]+[0.4´14%]+[0.3´(–16%)]=14%s2=[0.3´(44–14)2]+[0.4´(14–14)2]+[0.3´(–16–14)2]=540s=23.24%Themeanisunchanged,butthestandarddeviationhasincreased.6.a.Theholdingperiodreturnsforthethreescenario

4、sare:Boom:(50–40+2)/40=0.30=30.00%Normal:(43–40+1)/40=0.10=10.00%Recession:(34–40+0.50)/40=–0.1375=–13.75%E(HPR)=[(1/3)´30%]+[(1/3)´10%]+[(1/3)´(–13.75%)]=8.75%s2(HPR)=[(1/3)´(30–8.75)2]+[(1/3)´(10–8.75)2]+[(1/3)´(–13.75–8.75)2]=319.79s==17.88%b.E(r)=(0.5´8.75%)+(0.5´4%)=6.375%s=0.5´17.88%=8.9

5、4%5-11Chapter05-RiskandReturn:PastandPrologue1.a.Time-weightedaveragereturnsarebasedonyear-by-yearratesofreturn.YearReturn=[(capitalgains+dividend)/price]2007-2008(110–100+4)/100=14.00%2008-2009(90–110+4)/110=–14.55%2009-2010(95–90+4)/90=10.00%Arithmeticmean:3.15%Geometricmean:2.33%b.TimeCashf

6、lowExplanation0-300Purchaseofthreesharesat$100pershare1-208Purchaseoftwosharesat$110,plusdividendincomeonthreesharesheld2110Dividendsonfiveshares,plussaleofoneshareat$903396Dividendsonfourshares,plussaleoffoursharesat$95pershare396

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25、weightedreturn=Internalrateofreturn=–0.1661%5-11Chapter05-RiskandReturn:PastandPrologue1.a.E(rP)–rf=½AsP2=½´4´(0.20)2=0.08=8.0%b.0.09=½AsP2=½´A´(0.20)2ÞA=0.09/(½´0.04)=4.5c.Increasedrisktolerancemeansdecreasedriskaversion(A),whichresult