Calculate the arithmetic and geometric mean return for a stock with four-year annual returns of -7%, 10%, 50%, 15%. (2) 1.2. Calculate the standard deviation of annual investment returns, given the returns are –20.6%, –37.5%, 59.4%, and 33.8%. (2) 1.3. Suppose an investor wishes to combine a T-bill, which offers the risk free rate of 4.1%, and shares in HPQ Inc. HPQ has an expected return of 11% and a standard deviation of 22%. The portfolio is to be comprised of 50/50 split between the T-bill and HPQ. Calculate the portfolio expected return and standard deviation. (3) Question 2 [10] 2.1. An investor wishes to invest R15 000 in ABC Inc. which has a beta (β) which is half the market β and R20 000 in GB Corporation which has a β of 2.5. What is the beta of the portfolio? (2) 2.2. Using the CAPM and SML, what is the expected rate of return for an investment with a β of 1.8, a risk free rate of return of 4%, and a market rate of return of 10%? (1) 2.3. The following information is from: Your Portfolio The Market Return 12% ALSI return 10% Standard Deviation 14% Standard Deviation 12% Beta 1.2 Risk-free rate 4% Calculate Sharpe’s ratio and the Treynor Measure for both Your Portfolio and The Market and compare them. (7) Question 3 [3] Explain the characteristics of firm-specific risk. How might an investor limit his or her exposure to this type of risk
