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(Solved) I need help working on the questions with work provided. Thank you

I need help working on the questions with work provided. Thank you

1. DKG stock has the following probability distribution of expected prices one year from

now:

State

1

2

3

Probability

.25

.40

.35

Price

$50

$60

$70

(1) If you buy DKG stock today for $55 and it will pay a dividend during the year of

$4 per share, what is your expected holding period return on DKG?

(2) If instead, you require a risk premium of 5% and Rf is 4%. What is the price you

are willing to pay today for DKG? Assuming the stock will pay a dividend of $4

per share.

2. You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P,

constructed with 2 risky securities, X and Y. The weights of X and Y in P are 0.60 and

0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y

has an expected rate of return of 0.10 and a variance of 0.0081. The coefficient of

correlation, rho, between X and Y is 0.45.

a. If you desire to form a portfolio with an expected rate of return of 0.11, what

percentage of your money must you invest in the T-bill and P, respectively?

b. If you desire to form a portfolio with a standard deviation of 5.59%, what

percentages of your money must you invest in the T-bill, X, and Y respectively?

c. What would be the dollar values of your positions in X and Y, respectively, if you

decide to hold 40% of your money in the risky portfolio and 60% in T-bills?

d. What would be the dollar value of your positions in X, Y, and the T-bills,

respectively, if you decide to hold a portfolio that has an expected outcome of

$1,200?

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