Percent Geometric Return

Topics: Arithmetic mean, Mean, Investment Pages: 2 (600 words) Published: February 11, 2012
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.  |  |  |  |  |

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