ECON 360 UCLA Economics Worksheet

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please follow the instruction I know the time is short but it’s not a long work.no need to babe hand written but please write all the steps

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Due: Monday, April 20th @ 11:59PM
Exam #2 Point Make Up Assignment
5 Points Possible
This is not required, please complete at your own discretion. I will not accept late work for this
assignment.
Directions: Make sure you answer all parts thoroughly. Show all your handwritten work. I will not
accept types answers. I want to see all the steps. Make sure you draw your graphs.
Label the sections in your work. Make sure you upload a pdf file.
The stock of Business Adventures sells for $40 a share. It is likely dividend payout and end-of-year
price depend on the state of the economy by the end of the year as follows:
Economy Outcome
Boom
Normal Growth
Recession
Probability
10%
30%
60%
Stock Price
$55
$40
$35
Dividend
$2
$1
$0
Section 1:
a. Calculate the expected holding-period return and standard deviation of the holding-period
return.
b. Calculate the expected return and standard deviation of a portfolio invested (60%) in Business
Adventures and (40%) in Treasury bills. The return on bills is 3%.
c. What is the Sharpe ratio of the complete portfolio constructed in part b.
d. What is the CAL line equation for the complete portfolio?
d. Draw the CAL line for the complete portfolio.
Section 2: Leveraged Portfolio
a. Calculate the expected return and standard deviation of a portfolio invested (160%) in Business
Adventures and (-40%) in Treasury bills. The return on bills is 3%.
b. What is the Sharpe ratio of the complete portfolio constructed in part a.
c. What is the CAL line equation for the complete portfolio?
d. Draw the CAL line for the complete portfolio.
Section 3: Answer the following question
Why should investors diversify their investments rather than putting all their money in one
stock, such as Amazon? Explain in complete sentences using the knowledge from this chapter.

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Explanation & Answer:
6 Pages

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