1. The following average annualized returns are obtained for over various holding periods: ...
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Finance
1. The following average annualized returns are obtained for over various holding periods:
Current
1 year
2 years
3 years
5 years
20 years
Hang Seng Index
N/A
-4.29%
12.36%
15.05%
10.29%
14.08%
Exchange Fund Bill Yield
0.66%
1.08%
1.12%
1.58%
1.46%
4.81%
Required:
What would be your best estimate of market risk premium for Hong Kong equity?
If expected inflation rate increases by 1%, what would happen to market risk premium?
Determine expected market return.
2. A value-weighted mini-index initially contains two stocks A and B, with pre-determined number of shares. The index value at t=0 is defined to be 100.
Stock
Number of Shares
t=0
t=1
t=2
A
400
$20
$21
$22
B
200
$10
$12
$13
C
100
$ 4
$ 5
$ 6
Required:
What would be the index value at t=1?
Suppose that the stock exchange decides to add stock C to the mini-index at t=1. Work out index value at t=2.
What is the advantage of a value-weighted market index, as compared with an equally weighted market index?
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