Financial Analysis Problem Set Assignment

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xnlebq92

Business Finance

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Complete the following problems:

  1. An analyst predicted last year that the stock of LW, Inc. would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst’s prediction prove correct? Explain using the values for total annual return.
  2. Four analysts cover the stock of FLW Chemical. One forecasts a 5% return for the coming year. The second expects the return to be negative 5%. The third predicts a 10% return. The fourth expects a 3% return in the coming year. You are relatively confident that the return will be positive but not large, so you arbitrarily assign probabilities of being correct of 35%, 5%, 20%, and 40%, respectively, to the analysts’ forecasts. Given these probabilities, what is FLW Chemical’s expected return for the coming year?
  3. The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard deviation of the first investment’s return is 10%; the second investment’s return has a standard deviation of 5%. Which investment is less risky based solely on standard deviation? Which investment is less risky based on coefficient of variation? Which is a better measure given that the expected returns of the two investments are not the same?
  4. Your portfolio has three asset classes. U.S. government T-bills account for 45% of the portfolio, large-company stocks constitute another 40%, and small-company stocks make up the remaining 15%. If the expected returns are 3.8% for the T-bills, 12.3% for the large-company stocks, and 17.4% for the small-company stocks, what is the expected return of the portfolio?


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Explanation & Answer

Hey! Kindly find the attached answer. Thank you and all the best.

Running head: FINANCIAL ANALYSIS

1

Financial analysis
Name
Institution
Date

FINANCIAL ANALYSIS

2

Total annual return = Dividend yield + change in stock value
= (12-10)/10
=20%
As such, the analyst prediction proved ...


Anonymous
Excellent resource! Really helped me get the gist of things.

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