Question

1. K.J. Lee, CFA, an analyst with Water's Edge Securities, estimates the market risk premium is 6.30% and the risk-free rate is 1.15%. She's calculated the beta for Summerfield Tech as 0.68, and she estimates the expected return is:

2. Given the following information about past returns for Saphir Netmarketing, what is the standard deviation of returns?

Year	Return
1	11.10%
2	-3.80%
3	2.90%
4	6.30%
5	2.20%

3. Petter Jansen purchased 100 shares each in Sygnette and Joey Stores a year ago. He paid $15.87 and $65.40 per share respectively. He sold Sygnette today for $15.95. He received a dividend fromJoey Stores of $0.90 and also sold the stock today for $67.75 per share.  Petter's return for the portfolio is:

4. Given the choice between two assets with standard deviations of 12.70% each, a return for asset A of 9.80% and a return for asset B of 10.40%, a rational investor would choose:

	A.	either asset.
	B.	asset B.
	C.	asset A.

5. Greg Noronha has been told the expected return on Merchants Bank is 9.75%, He knows the risk-free rate is 1.9%, the market risk premium is 6.75%, and Merchants' beta is 1.15. Based on the Capital Asset Pricing Model, Merchants Bank is:

	A.	overvalued.
	B.	undervalued.
	C.	fairly valued.

Answer 1

Here the answers for Question -1 is 5.434%

Question -2 is 4.91227%

Question -3 is 4.09745%

Question -4 a rational investor would prefer stock -B

Question - 5 The stock is undervalued

We have used the CAPM model and formula for calculating the standard deviation and Holding period return

Please go through the workings for detailed analysis.