Q1. You purchased 600 shares of stock ABC for $24 per share and 300 shares of stock XYZ for $200 per share exactly one year ago.  During the year, stock ABC paid a $1.10 dividend per share and XYZ did not pay a dividend. The current stock prices are ABC=$30 per share and XYZ = $180 per share.  Answer the following (showing all work):

(a) Calculate the actual return (also called percentage return) on your investment in (i) ABC, (ii) XYZ and (iii) the portfolio over the last year.

(b) Calculate (i) the dividend yield and (ii) the percentage capital gain for the portfolio.

(c) Calculate the real rate of return on the portfolio if the inflation rate was 2%.

Q2. You are interested in buying a stock that has a price of $22.  You have projected that next year there is:  a 10% probability the stock will equal $1, a 20% probability the stock will equal $16, a 30% probability the stock will equal $23, a 30% probability the stock will equal $35, and a 10% probability the stock will equal $50. Answer the following (showing all work):

(a) What is the expected return on the stock if you buy today and sell next year?

(b) What is the expected standard deviation of the stock?

Q3. Find two publicly traded stocks in different industries and look up estimates of their β.

(a) Using Rf = 1%, E(Rm) = 8%, calculate the E(r) for each stock.

(b) Explain in words a non-finance student could understand why the one stock has a higher expected return than the other.

Q4. Find an announcement of new information made within a month from today (i.e., earnings announcement, merger, etc.) for any publicly traded stock that moves the stock price at least 1%. Print out or draw a chart that shows at least 2 days before the event and at least one day after. [Note: make sure you find the first announcement of the information.]

(a) Using this chart, analyze if the evidence is consistent with the semi-strong form market efficiency.

(b) Is the stock market reaction consistent with the strong form of market efficiency?

Q5. Geothermal corporation issued a press release before the stock market opened announcing that its earnings in 1st quarter 2017 were 10% higher last year's 1st quarter earnings.  Explain how each of the following individual scenarios could be consistent with the semi-strong form of market efficiency.

(a) When trading opened after the announcement, the stock price quickly decreased.

(b) The stock price of Geothermal decreased slowly over the 30 days before the announcement that earnings were lower than last year.

(c) The stock price increased by 10% immediately following the announcement but then decreased throughout the day so that the closing price was only 2% below the previous day.

(d) The stock price of Geothermal did not change after the announcement was made public.