# Financial Analysis Problem Set

Financial Analysis Problem Set Complete the following problems: 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 analysts prediction prove correct? Explain using the values for total annual return. 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 Chemicals expected return for the coming year? The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard deviation of the first investments return is 10%; the second investments 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? 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? 