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 total...

...Phoenix
Credit Policy Decisions
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...

...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...

...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...

...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...

...Week 3 Time Value of Money and Valuing Bonds
Chapter 6
55. Amortization with Equal Payments Prepare an amortization schedule for a five-year loan of $36,000. The 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...

...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...

...ch10
Student: ___________________________________________________________________________
1.
The capital 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...