Project Corporate Finance Management
Instructions:
1.Use a 12-point font in Times New Roman.
2.Show all necessary formulas and calculations.
3.This Assignment covers Lecture 14 to Lecture 16 of your course.
4.Due date for the submission of Assignment is 20th April 2016.
5.Upload your assignment with in due date and time. No assignment will be accepted after the due date and time.
6.Be very careful while uploading your assignment, as no assignment will be replaced after it was uploaded on SERVER.
7.No credit will be given to copied assignments.
8.USE EXCEL TO SOLVE ASSIGNMENT.
Question
Suppose you are working as a stock analyst in a brokerage house in the Karachi Stock Exchange (KSE). You are given the following data:
Historical Rates of Returns
Year KSE Stock X
1 (26.5%) (14.0%)
2 37.2% 23.0%
3 23.8 17.5
4 (7.2%) 2.0%
5 6.6% 8.1%
6 20.5% 19.4%
7 30.6% 18.2%
Required:
1.Determine the arithmetic average rates of returns for stock X and the KSE over the period given.
2.Calculate the standard deviations of returns for both stock X and the KSE.
3.Suppose you hold a large, well diversified portfolio and are considering adding to the portfolio either stock X or another stock, stock Y, that has the same beta as stock X but a higher standard deviation of returns. Stock X and Y have the same expected returns; which stock should you choose?
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