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both over the last 10 years (2007–2016). Molly’s investigation of the
outlook for these issues suggests that each will, on average, tend to
behave in the future just as it has in the past. She therefore believes that
the expected return can be estimated by finding the average HPR over
the past 10 years for each of the stocks. The historical dividend income
and stock price data collected by Molly are given in the accompanying
table.
Questions
a. Determine the HPR for each stock in each of the preceding 10
years. Find the expected return for each stock, using the approach
specified by Molly.
b. Use the HPRs and expected return calculated in question a to find
the standard deviation of the HPRs for each stock over the 10-year
period.
c. Use your findings to evaluate and discuss the return and risk
associated with stocks X and Y. Which stock seems preferable?
Explain.
d. Ignoring her existing portfolio, what recommendations would you
give Molly with regard to stocks X and Y?
e. ------------------------------------------------------------------------------
FIN 402 Week 2 Assignment Case Problem 5.2 Susan Lussier’s
Inherited Portfolio Does It Meet Her Needs
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