You have $2,000 to invest. If you invest your $2,000 in micro-cap stocks, the total value of your investment after one year will become $4,500 with a probability of 50%, $2,500 with a probab
Complete Ps1 by 03/20 and Ps2 by 03/27.
FIN650/Kim 20 points Page 1 of 2 Problem Set 1 1. YOU MUST SHOW YOUR WORK: Please show how you got your answers. 2. You may type your work using MS Word, EXCEL, or any word processing program that suits you best. 3. You may also handwrite your work on paper, and then either scan them or take high-resolution pictures with your smartphone. As long as I can read your work, you are fine. 4. This is an individual assignment. You are not allowed to discuss or consult with others. 5. All questions have equally weighted points. 6. Submit your files via BeachBoard: Go to the Dropbox menu and upload your files. The Problem Set is due 3/21, 2023, 11:59 p.m.
FIN650/Kim 20 points Page 2 of 2 Q1. Using the following data, compute the arithmetic and the geometric average return on your investment. Year Percent Return on Your Investment 2019 +7% 2020 -10% 2021 8% 2022 5% Q2. You have $2,000 to invest. If you invest your $2,000 in micro-cap stocks, the total value of your investment after one year will become $4,500 with a probability of 50%, $2,500 with a probability of 25%, and $1,000 with a probability of 25%. Find the expected return on your investment for the year. Q3. The current price of IBM is $50. In four months, the stocks price is expected to be at $75 with a probability of 60%, or at $30 with a probability of 40%. What is the annualized expected return? Q4. The current price of TSLA is $900. It can go up to $950 with a probability of 60% or drop to $800 with a probability of 40%. Compute the expected standard deviation (in %) of return. A hint for this question is posted on the Beach Board. Q5. Suppose you invest in a stock for four months. The expected return for the investment is 15%, and the expected volatility is 8%. What is the annualized Sharpe ratio? Assume that the annual risk-free rate is 1%.
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