1. Calculating Returns ( LO1, CFA1) Suppose you bought 100 shares of stock at an initial price of $ 37 per share. The stock paid a dividend of $ 0.28 per share during the following year, and the share price at the end of the year was $ 41. Compute your total dollar return on this investment. Does your answer change if you keep the stock instead of selling it? Why or why not? 2. Calculating Yields ( LO1, CFA1) In the previous problem, what is the capital gains yield? The dividend yield? What is the total rate of return on the investment? 3. Calculating Returns ( LO1, CFA1) Rework Problems 1 and 2 assuming that you buy 750 shares of the stock and the ending share price is $ 32. 5. Calculating Average Returns ( LO1, CFA1) The rate of return on Cherry Jalopies, Inc., stock over the last fi ve years was 17 percent, 11 percent, 2 percent, 3 percent, and 14 percent. Over the same period, the return on Straw Construction Company’s stock was 16 percent, 18 percent, 6 percent, 1 percent, and 22 percent. What was the arithmetic average return on each stock over this period? 6. Calculating Variability ( LO4, CFA2) Using the information from the previous problem, calculate the variances and the standard deviations for Cherry and Straw. 9. Arithmetic and Geometric Returns ( LO1, CFA1) A stock has had returns of 21 percent, 12 percent, 7 percent, 13 percent, 4 percent, and 26 percent over the last six years. What are the arithmetic and geometric returns for the stock? 14. Risk Premiums ( LO2) Refer to Table 1.1 for large- stock and T- bill returns for the period 1973– 1977: a. Calculate the observed risk premium in each year for the common stocks. b. Calculate the average returns and the average risk premium over this period. c. Calculate the standard deviation of returns and the standard deviation of the risk premium. d. Is it possible that the observed risk premium can be negative? Explain how this can happen and what it means. | | | | |

...Risk and Return
Assignment Questions
1. Suppose a stock begins the year with a price of $25 per share and ends with a price of $35 per share. During the year it paid a $2 dividend per share. What are its dividend yield, its capital gain, and its total return for the year?
2. An investor receives the following dollar returns a stock investment of $25:
$1.00 of dividends
Share price rise of $2.00
Calculate the investor’s totalreturn.
3. Below are the probabilities for the economy’s five possible states next year, with the corresponding returns on the market and on Trebli, Inc., stock
Economic Condition
Probability
Market Return
Trebli Return
Rapid expansion
0.12
0.23
0.12
Moderate expansion
0.40
0.18
0.09
No growth
0.25
0.15
0.05
Moderate contraction
0.15
0.09
0.01
Serious contraction
0.08
0.03
-0.02
a. What is the expected return on the market?
b. What is the expected return on the Trebli stock?
4. Tabulated below are the returns from 1935 through 1939 on small-company stocks and on the large-company common stocks.
Year
Small Company Stocks (%)
Large Company Common Stocks (%)
1935
47.7
46.9
1936
33.9
32.4
1937
-35.0
-35.7
1938
31.0
32.3
1939
-0.5
-1.5
a. Calculate the average return for the small company stocks and large company common stocks.
b....

...Collins Office Supplies is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, production and selling costs are 78 percent, and accounts receivable turnover is five times. Assume income taxes of 30 percent and an increase in sales of $80,000. No other asset buildup will be required to service the new accounts.
a. What is the level of accounts receivable needed to support this sales expansion?
Answer- Level needed is [pic]
b. What would be Collins’s incremental after-tax return on investment?
80,000 – 7,200 = 72,800-4,000-62,400=6,450-1,920= $4,480 which is equal to 28 percent.
c. Should Collins liberalize credit if a 15 percent after-tax return on investment is required? Assume Collins also needs to increase its level of inventory to support new sales and that inventory turnover is four times.
Yes, the actual return was higher than the requirement.
d. What would be the total incremental investment in accounts receivable and inventory to support an $80,000 increase in sales?
Inventory 20,000+Accounts 16,000 = 36,000 which would be a 12.44 percentreturn.
e. Given the income determined in part b and the investment determined in part d, should Collins extend more liberal credit...

...Geometric mean
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The geometric mean, in mathematics, is a type of mean or average, which indicates the central tendency or typical value of a set of numbers. It is similar to the arithmetic mean, which is what most people think of with the word "average," except that instead of adding the set of numbers and then dividing the sum by the count of numbers in the set, n, the numbers are multiplied and then the nth root of the resulting product is taken.
For instance, the geometric mean of two numbers, say 2 and 8, is just the square root (i.e., the second root) of their product, 16, which is 4. As another example, the geometric mean of 1, ½, and ¼ is the cube root (i.e., the third root) of their product (0.125), which is ½.
The geometric mean can be understood in terms of geometry. The geometric mean of two numbers, a and b, is simply the side length of the square whose area is equal to that of a rectangle with side lengths a and b. That is, what is n such that n² = a × b? Similarly, the geometric mean of three numbers, a, b, and c, is the side length of a cube whose volume is the same as that of a rectangular prism with side lengths equal to the three given numbers.
The geometric mean only applies to positive numbers.[1] It is also often used for a set of numbers whose values are meant to be...

...Gas law Experiment
Anna CunananProfessor Stewart
Chemistry 400 T/TH 1:30 PM
18 March, 2014
Objectives: In this Experiment, we will be decomposing KClO3 into two different compounds, KCl and O2. We are given a known mixture that has MnO2 in it to act as a catalyst. When decomposing KClO3 it releases O2 gas, which we then collect into the Erlenmeyer flask. The gas then displaces the water into the beaker, which we can then calculate the water evolved. The first method we use to determine the percent composition is Gravimetric. With this method we use the mass of the reactant and the mass of the product. Another way to acquire the percent composition is by the Volumetric Method. This method requires measuring the water displaced by the O2 gas. If the experiment is done correctly, we should be able to calculate the percent composition of KClO3 by using both methods.
Theory: This experiment requires us to use both the Gravimetric and Volumetric methods in order to acquire our percent composition. Since all gasses at Standard Temperature and Pressure contain one mole for every 22.4 L of gas, we can use stoichiometry to figure out how many moles of reactant we began with. Considering the room is at constant temperature change, the volume of the gas varies. Thus we convert the volume of gas used to STP conditions.
Procedure:All means and materials were conducted as advised accordingly to Experiment 6 found on pages...

...Bond P is a premium bond with a 12 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 9 percent, and have five years to maturity. The current yield for Bonds P and D is percent and percent, respectively. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)) |
If interest rates remain unchanged, the expected capital gains yield over the next year for Bonds P and D is percent and percent, respectively. (Do not include the percent signs (%). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) |
Explanation:
To find the capital gains yield and the current yield, we need to find the price of the bond. The current price of Bond P and the price of Bond P in one year is: |
P: | P0 = $120(PVIFA9%,5) + $1,000(PVIF9%,5) = $1,116.69 |
| |
| P1 = $120(PVIFA9%,4) + $1,000(PVIF9%,4) = $1,097.19 |
| |
| Current yield = $120 / $1,116.69 = .1075 or 10.75% |
| |
| The capital gains yield is: |
| |
| Capital gains yield = (New price – Original price) / Original price |
| |
| Capital gains yield = ($1,097.19 – 1,111.69) / $1,116.69 = –.0175 or –1.75% |
| |
| The current price of Bond D and the price of Bond D in one year...

...interest rate is 9 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year?
Answer: $2,108.52
56. Amortization with Equal Principal Payments Rework Problem 55 assuming that the loan agreement calls for a principal reduction of $7,200 every year instead of equal annual payments.
Answer: $1,944.00
57. Calculating Annuity Values Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $20,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $325,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $2,000 per month for the next 10 years. If he can earn an 11 percent EAR before he retires and an 8 percent EAR after he retires, how much will he have to save each month in years 11 through 30?
Answer: $2,259.65
58. Calculating Annuity Values After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $28,000. The dealer has a special leasing arrangement where you pay $1 today and $380 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over...

...Solution to Case 02
Risk and Return
Flirting With Risk
Questions:
1. Imagine you are Bill. How would you explain to Mary the relationship between risk and return of individual stocks?
I would explain to Mary that risk and return are positively related, i.e. if one expects to earn higher returns, then one has to be willing to invest in stocks whose price can vary significantly from year to year or in different economic conditions. For example, in the table below we see that treasury bills would have yielded 4% with almost no variability, while the index fund is expected to yield 10.1% with a standard deviation of 9.15%.
| | Expected Rate of Return |
|Scenari/o |Probability |Treasury Bill |Index Fund |Utility Company |High-Tech Company|Counter-Cyclical |
| | | | | | |Company |
|Recession |20% |4% |-2% |6% |-5% |20% |
|Near Recession |20% |4% |5% |7% |2%...

...gains yield plus the dividend yield on a security is called the:
A. geometricreturn.
B. average period return.
C. current yield.
D. total return.
2.
The expected return on a security in the market context is:
A. a negative function of execs security risk.
B. a positive function of the beta.
C. a negative function of the beta.
D. a positive function of the excess security risk.
E. independent of beta.
3.
A capital gain occurs when:
A. the selling price is less than the purchase price.
B. the purchase price is less than the selling price.
C. there is no dividend paid.
D. there is no income component of return.
4.
Which one of the following is a correct statement concerning risk premium?
A. The greater the volatility of returns, the greater the risk premium.
B. The lower the volatility of returns, the greater the risk premium.
C. The lower the average rate of return, the greater the risk premium.
D. The risk premium is not correlated to the average rate of return.
5.
You bought 100 shares of stock at $20 each. At the end of the year, you received a total of $400 in
dividends, and your stock was worth $2,500 total. What was your total return?
A. 45%.
B. 50%.
C. 90%.
D. 20%.
6.
You bought 100 shares of stock at $20 each. At the end of the year, you received a total of $400...