Fundamentals of Finance

Please help with the following. I completed the assignment and received the below feedback from the professor. Please see the questions below the comments, and my answers below that. SEE THE BELOW WHAT IS THE CALCULATED TOTAL DOLLAR RETURN? What are market risks and how do they fit in the total risk of a stock? Think of total risk from this perspective: when you follow the price of a stock, what could drive the price up or down on a daily basis? Once you think of some possible reasons, try to categorize them and explain the total level of risk. Professor Comments Does not calculate the dollar return on an investment. The calculations of the total dollar return are missing. Does not identify the total level of risk of a stock. This answer is missing. What are market risks and how do they fit in the total risk of a stock? Think of total risk from this perspective: when you follow the price of a stock, what could drive the price up or down on a daily basis? Once you think of some possible reasons, try to categorize them and explain the total level of risk. Homework Questions 1. Define risk, and explain how it is measured. 2. Identify a source of firm-specific risk. What is the source of market risk? 3. Explain what the coefficient of variation measures. 1. Two years ago, Conglomco stock ended at $73.02 per share. Last year, the stock paid a $0.34 per share dividend. Conglomco stock ended last year at $77.24. If you owned 200 shares of Conglomco stock, what were your dollar return and percent return last year? 2. Calculate the coefficient of variation for the following three stocks. Then rank them by their level of total risk, from highest to lowest: · Conglomco has an average return of 11 percent and standard deviation of 24 percent. · Supercorp has an average return of 16 percent and standard deviation of 37 percent. · Megaorg has an average return of 10 percent and standard deviation of 29 percent. 1. Year-to-date, Conglomco has earned a −1.64 percent return, Supercorp has earned a 5.69 percent return, and Megaorg has earned a 0.23 percent return. If your portfolio is made up of 40 percent Conglomco stock, 30 percent Supercorp stock, and 30 percent Megaorg stock, what is your portfolio return? My Answers 1. Define risk, and explain how it is measured. Risk can be defined as being exposed to danger. In terms of finance risk is basically what the outcome of investments will be or the possibility of the business outcome. Risk is measured based on unpredictability and changeability, how many variables are there and how predictable are those variables. 2. Identify a source of firm-specific risk. What is the source of market risk? Risks associated with specific professions are considered firm-specific. Let's take for example if an organization states they'll have to reduce or even all together slash shareholder dividends, this action would affects only that company and no other. 3. Explain what the coefficient of variation measures. The coefficient of variation measures data points that show the relationship between risk and return. The data point typically shows the amount of return an investor can expect to obtain on their investment based on the risk associated with the investment. 1. Two years ago, Conglomco stock ended at $73.02 per share. Last year, the stock paid a $0.34 per share dividend. Conglomco stock ended last year at $77.24. If you owned 200 shares of Conglomco stock, what were your dollar returns and percent return last year? Percent Rate = (($77.24-$73.02)+$0.34)/$73.02 ($4.22+$0.34)/ $73.02 = $4.56/$73.02 = 0.0624 or 6.24% 2. Calculate the coefficient of variation for the following three stocks. Then rank them by their level of total risk, from highest to lowest: Conglomco has an average return of 11 percent and standard deviation of 24 percent. Standard deviation/Average Return 0.24/0.11 = 2.18 Supercorp has an average return of 16 percent and standard deviation of 37 percent. 0.37/0.16 = 2.31 Megaorg has an average return of 10 percent and standard deviation of 29 percent. 0.29/0.10 = 2.90 The highest to lowest based on total risk: Supercorp, Megaorg and Conglomco Year-to-date, Conglomco has earned a −1.64 percent return, Supercorp has earned a 5.69 percent return, and Megaorg has earned a 0.23 percent return. If your portfolio is made up of 40 percent Conglomco stock, 30 percent Supercorp stock, and 30 percent Megaorg stock, what is your portfolio return? (.40*-.0164)+(.30*.0569)+(.30*.0023) = .0065+..0171+.0007 =.0243 or 2.43%