ll etisalat 4G 5:09 PM Personal Hotspot: 1 Connection FINA 213 Assignment-Studen
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ll etisalat 4G 5:09 PM Personal Hotspot: 1 Connection FINA 213 Assignment-Students ' Close PDF - 318 KB Fall 2017-201· Individual Anipmmt Assignment FIN 215 Introduction to Finance Tetal Marks 25 a. The assiganent teed to be MS Weed format Ques. 1 Using the data in the following table, estimane a) the average return and velatility for each stock b) the covariance between the stocks, and c) the coerelation between these two stocks Stock B 3 marks Quex. 2 Supposg you have $100,000 in cash, and you d cide to borrow mther $15,000 a4% interest rate to invest in the stock market. You invest the entire S115,000 in a portfolio Jwith a 15% expected return and a 25% volatility. a. b, E. Wh is the expected return and volatility(standard deviation, of your investment? What is your realized return if J goes up 25% over the year? What return do you realize if J falls by 20% over the year? 3 marks) Ques. 3 Hison Holdings, Ine. (HHI) is publicly traded, with a cutent share peice of 532 per share, HI has 20 million shares oustanding, as well as $64 million in debt. The foundsr o HHI, Harry Harrison, made his fortune in the fast food businoss He sold off part of his fast-food empire, and purchased a professional hockey team. HHI's only assets are the hockey team, together with 50% of the outstanding shares of Harry's Hotdogs restaurant chain. Harry's Hotdog (HDG) has a market capitalization of S850 million and an merpr value of $1,05 billion Afer a little research, you find Bal arverage asset beta ofcdcr fast-food estaurant chains 0.75 You also find thut the debt of HHI and HDG is highly rated, and so you decide to estimate the beta ofboth firms' debt asa Finally. you do a regression analysis on HHI's histonical stock retums in comparison so the S&P; s00, and estimale an equity beta of 1.33. Given this information, estimate the beta of HHI's investment in the hockey tcam 4 marks) Page 2 of3 save Fall 2017-2018 ndividual Assigsme Ques. 4 You own a firm with a single new product that is about so be introduced to the public for the first time. Your markcting analysis suggests that the demand Soe this product could be anywhere between 500,000 units and 5,000,000 units. Given such a wide ranpe, discuss the safest cost structure alternative for your fim 4 marksExplanation / Answer
1a) AVERAGE RETURN
.1.a)AVERAGE RETURN
Return(percent)
Year
Stock A
Stock B
A
2004
-10
21
B
2005
20
7
c
2006
5
30
D
2007
-5
-3
E
2008
2
-8
F
2009
9
25
G=A+B+C+D+E+F
TOTAL
21
72
AVERAGE RETURN=G/6
3.5%
12%
.1a)VOLATILITY OF STOCK A
A
B=A-3.5
C=B^2
Return (percent)
Deviation
Deviation
Year
Stock A
from average
Squared
2004
-10
-13.5
182.25
2005
20
16.5
272.25
2006
5
1.5
2.25
2007
-5
-8.5
72.25
2008
2
-1.5
2.25
2009
9
5.5
30.25
TOTAL
561.5
Variance=561.5/(6-1)
112.3
Volatility=Square root (112.3)=
10.59717%
VOLATILITY OF STOCK B
STOCK B
A
B=A-12
C=B^2
Return (percent)
Deviation
Deviation
Year
Stock B
from average
Squared
2004
21
9
81
2005
7
-5
25
2006
30
18
324
2007
-3
-15
225
2008
-8
-20
400
2009
25
13
169
TOTAL
1224
Variance=561.5/(6-1)
244.8
Volatility=Square root (244.8)
15.64609%
.b) COVARIANCE BETWEEN THE STOCKS
A
B=A-3.5
C
D=C-12
E=B*C
Return (percent)
Deviation from
Return (percent)
Deviation
Deviation A
Year
Stock A
Average
Stock B
from average
*Deviation B
2004
-10
-13.5
21
9
-121.5
2005
20
16.5
7
-5
-82.5
2006
5
1.5
30
18
27
2007
-5
-8.5
-3
-15
127.5
2008
2
-1.5
-8
-20
30
2009
9
5.5
25
13
71.5
Total
52
COVARIANCE=52/(6-1)
10.4
CORRELATION BETWEEN THESE STOCKS:
Correlation=(Covariance)/((Volatility of StockA)*(Volatility of stock B))
Correlation =10.4/(10.59717*15.64609)=0.062725
.1.a)AVERAGE RETURN
Return(percent)
Year
Stock A
Stock B
A
2004
-10
21
B
2005
20
7
c
2006
5
30
D
2007
-5
-3
E
2008
2
-8
F
2009
9
25
G=A+B+C+D+E+F
TOTAL
21
72
AVERAGE RETURN=G/6
3.5%
12%
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