Case analysis
e Allied Group has acquired Kramer Industries and is now considering additional investments. They have determined that there is a firm that is a good fit for their portfolio, the Kramer firm of Montana. The firm was established in 1990 and has the following historical returns:
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Kramer Industries
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Year
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Earnings
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1990
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(8% Loss)
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1995
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23%
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2000
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26%
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2005
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31%
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2010
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18%
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Questions: Address all of the following questions in a brief but thorough manner.
• What was the average return for the stock over the period of 1990 through 2010?
• What was the standard deviation for the stock over this period?
• Justified whether or not the company should be purchased
• Assume that you currently have a portfolio that returns 19.5%. If you add this stock to the current portfolio, what would happen to the average return on the portfolio?
• Correctly identified the result of adding Kramer to your existing portfolio.
• Should Allied invest in the stock? Justify your response.