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I need help in answering the 3 problems below. Let me know if you can help me. Thanks!!!

Problem 1 Indexes (33 points)

Consider the three stocks in the following table. Pt represents the price at the

end of period t and Qt is the number of shares outstanding. Stock C splits 2:1 during period

2.

P0

Q0

P1

Q1

P2

Q2

A

105

100

100

100

115

100

B

62

300

58

300

51

300

C

25

200

29

200

11

400

1.1 Calculate the price-weighted index of the three stocks for each period (4 points). What is the divisor for each period (4 points)? Does it

change in the last period (2 points)? Why or why not (2 points)?

1.2 Calculate the price-weighted index returns for the periods ending in 1 and 2 (7 points).

1.3 Calculate the value-weighted index returns for the periods ending in 1 and 2 (7 points).

1.4 Calculate the equal-weighted index return for the period ending in 1 (7 points).

Problem 2 Margin (34 Points)

2.A. The current market price for XYZ is $130 per share. Initial margin is 50% maintenance margin is 35% and margin interest is 1.25% per

year.

2.A.1) You believe the stock price will increase over the next year and wish to trade exactly one round lot. What trade should you make (2

points)? How much margin would you have to post to your account (4 points)? At what price would you receive a margin call (7 points)?

2.A.2) Suppose you are correct and the stock rises to $147 per share at the end of the year. What is your percentage return on equity for this

trade (4 points)?

2.B. The current market price for ABC is $90 per share. Initial margin is 50% maintenance margin is 35% and there is no margin

interest.

2.B.1) You believe the stock price will decrease over the next year and wish to trade exactly one round lot. What trade should you make (2

points)? How much margin would you have to post to your account (4 points)? At what price would you receive a margin call (7 points)?

2.B.2) Suppose you are correct and the stock falls to $74 per share at the end of the year. What is your percentage return on equity for this

trade (4 points)?

Problem 3 Scenario Analysis (33 points)

Use the following scenario analysis for stocks X and Y to answer the questions. Round to the nearest 1/100 of 1% (i.e. 15.07%).

Bear Market

Normal Market

Bull Market

Probability

0.3

0.4

0.3

Stock X

-7.5%

9%

14%

Stock Y

-15%

10%

20%

3.a) What are the expected rates of return for stocks X and Y (11 points)?

3.b) What are the standard deviations for of returns for stocks X and Y (11 points)?

3.c) Assume you have a $100000 portfolio and you invest $45000 in stock X and the remainder in stock Y. What is the expected return for

this portfolio (11 points)?

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