Question

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Given below is hypothetical data on two stocks on the LUSE and the market data (All Lusaka Share Index). The market data already includes dividends paid during the year.

Stock 1                                  Stock 2                                  Market Index

Year   Stock Price Dividend       Stock Price Dividend       (Includes Dividends)

2013: K25.88           K1.73              K73.13           K4.50              17,495.97

2012: 22.13              1.59                78.45              4.35                13,178.55

2011: 24.75              1.50                73.13              4.13                13,019.97

2010: 16.13              1.43                85.88              3.75                9,651.05

2009: 17.06              1.35                90.00              3.38                8,403.42

2008: 11.44              1.28                83.63              3.00                7,058.96

1)what is the appropriate annual return for stock 1?

2) determine the systematic risk for stock 1.

3)determine the systematic risk for stock 2

4)what is the appropriate average annual return for stock 2

5)what is the appropriate average annual return for the market index

6) calculate the total risk exposure for stock 1

7) calculate the total risk exposure for stock 2

8) calculate the total risk exposure for the market index

9) calculate the downside deviation on returns for stock 1

8) calculate the downside deviation on returns for stock 2

9)calculate the downside deviation on the market index

10) calculate your return expectation on this investment

11)what is the total expected volatility for the investment

12)determine the minimum rate of return you would require from the investment

ype or paste question here

Answer 1

Answer 1)

Average Annula Return of Stock 1

Stock 1
Stock price	Dividend	Returns (Price at end + Div. of previous year - Price at beg.) / Price at Beginning
25.88	1.73	24.13%
22.13	1.59	-4.53%
24.75	1.5	62.31%
16.13	1.43	2.46%
17.06	1.35	60.31%
11.44	1.28

Average Annual Return = Sum of all returns/ No. of Years

=28.94%

Answer 2)

Systematic Risk is the Beta of stock which cannot be mitigated by diversification. Also known as the undiversifiable risk.

Stock price	Returns on Stock Expect Dividend
25.88
22.13	16.95%
24.75	-10.59%
16.13	53.44%
17.06	-5.45%
11.44	49.13%

Market Index	Returns
17495.97
13178.55	32.8%
13019.97	1.2%
9651.05	34.9%
8403.42	14.8%
7058.96	19.0%

We calculate the returns for both Stock 1 and Market Index . Return = (Price at end - Price at Beginning) / Price at beginning

We then run a regression analysis on the returns.

Using Excel, Select Data , Select Data Analysis, Select Regression.

Y variable will be returns on stock and X variable will be returns on market index.

Systematic Risk of Stock 1 = 1.49

Answer 3)

Systematic Risk is the Beta of stock which cannot be mitigated by diversification. Also known as the undiversifiable risk.

Stock price	Returns on Stock Price (Not considering Dividend)
73.13
78.45	-6.78%
73.13	7.27%
85.88	-14.85%
90	-4.58%
83.63	7.62%

Market Index	Returns
17495.97
13178.55	32.8%
13019.97	1.2%
9651.05	34.9%
8403.42	14.8%
7058.96	19.0%

We calculate the returns for both Stock 2 and Market Index . Return = (Price at end - Price at Beginning) / Price at beginning

We then run a regression analysis on the returns.

Using Excel, Select Data , Select Data Analysis, Select Regression.

Y variable will be returns on stock and X variable will be returns on market index.

Systematic Risk of Stock 2= -0.55

Answer 4)

Average annual return of Stock 2

Stock 2
Stock price	Dividend	Returns (Price at end + Div. of previous year - Price at beg.) / Price at Beginning
73.13	4.5	-1.24%
78.45	4.35	12.92%
73.13	4.13	-10.48%
85.88	3.75	-.82%
90	3.38	11.2%
83.63	3

Average Annual Return = Sum of all returns/ No. of Years

= 2.32%