CHAPTER 11  – PROBLEM 2

2.) Determine the intrinsic values of the following put options when the stock is selling at $63 just prior to expiration of the options.

1. $55 put price

   Intrinsic value = 55.00 – 63.00 = $ -8.00

    

2. $65 put price

   Intrinsic value = 65.00 – 63.00 = $2.00

    

3. $75 put price

   Intrinsic value = 75.00 – 63.00 = $8.00

CHAPTER 12 – PROBLEM 6 & 8

5.) You’ve collected data on the betas of various mutual funds. Each fund and its beta is listed below:

MUTUAL FUND     BETA

Weak Fund                0.23

Fido Fund                  0.77

Vanwatch                   1.05

Temper                       1.33

1. Estimate the beta of your fund holdings if you held equal proportions of each of the above funds.

2. Estimate the beta of your fund holdings if you had 20 percent of your investment in  the Weak fund, 40 percent in Fido, 15 percent in Vanwatch, and the remainder in Temper.

6.) Using your answers to (a) and (b) in problem 5, estimate your portfolio’s expected return if the security market line is estimated as E(Ri) = 5.2 + 8.4 (Bi).

8.) EXCEL below is nine months return data for Walgreens and the S&P 500.

a.) Estimate the intercept (alpha) and beta for Walgreens stock using spreadsheet functions.

b. Interpret what the slope estimate means to a stock analyst.

c. Compute the R-squared of the regression using Excel’s RSQ function. What does the R-squared tell us about the relationship between Walgreens returns and those of the market?

MONTH         WALGREENS RETURN   S&P 500 RETURN

1                                  2.0%                                       7.5%

2                                  -5.9%                                      1.8%

3                                  0.2%                                       8.2%

4                                  2.0%                                       -6.4%

5                                  -2.2%                                      -1.1%

6                                  -14.3%                                    -2.5%

7                                  -6.0%                                      0.5%

8                                  4.9%                                       7.7%

9                                  -7.9%                                      -6.4%

DUE DATE: TUESDAY 28