1. Computing standard deviation and rates of return
Year 2004 2005 2006 2007 2008
Rate of Return A 70% -50% 50% 40% 20%
Rate of Return B 105% 80% -10% -20% 50%
Compute the arithmetic return and the standard deviation of returns.
2. Expected return and pricing
Your discount rate is 12%
Dividend at time zero is $1.25
The expected growth rate is 4%.
Using the Gordon Model, determine the price of the stock.
3. The CAPM
Compute the required rate of return on a stock that has a beta of 2, if the risk-free rate is 4% and the market rate of return is 12 percent.
Compute the required rate of return on a stock that has a beta of .6, if the risk-free rate is 4% and the market rate of return is 12 percent.

4. Portfolio Returns
You have $200,000 to invest. You invest 60% in stock A and 40% in stock B.
The returns for your stocks are the same as #8 above.
Year 2004 2005 2006 2007 2008
Rate of Return A 70% -50% 50% 40% 20%
Rate of Return B 105% 80% -10% -20% 50%

Year 2004 2005 2006 2007 2008
Portfolio Returns
Portfolio Std Dev.
Determine the portfolio returns and standard deviation for each year.