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Ch.9 Solutions - 1 The return of any asset is the increase...

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1. The return of any asset is the increase in price, plus any dividends or cash flows, all divided by the initial price. The return of this stock is: R = [($94 – 83) + 1.40] / $83 R = .1494 or 14.94% 2. The dividend yield is the dividend divided by price at the beginning of the period, so: Dividend yield = $1.40 / $83 Dividend yield = .0169 or 1.69% And the capital gains yield is the increase in price divided by the initial price, so: Capital gains yield = ($94 – 83) / $83 Capital gains yield = .1325 or 13.25% 7. The average return is the sum of the returns, divided by the number of returns. The average return for each stock was: [ ] % . . . . . . N x X N i i 00 10 or .1000 5 13 28 08 06 11 1 = + + - + = = = [ ] % . . . . . . N y Y N i i 20 16 or .1620 5 43 12 21 07 36 1 = + - + - = = = We calculate the variance of each stock as: ( 29 ( 29 ( 29 ( 29 ( 29 ( 29 ( 29 { } ( 29 ( 29 ( 29 ( 29 ( 29 { } 061670 162 43 162 12 162 21 162 07 162 36 1 5 1 016850 100 13 100 28 100 08 100 06 100 11 1 5 1 1 2 2 2 2 2 2 2 2 2 2 2 2 1 2 2 . . . . . . . . . . . s . . . . . . . . . . . s N x x s Y X N i i X = - + - - + - + - - + - - = = - + - + - - + - + - - = - - = = The standard deviation is the square root of the variance, so the standard deviation of each stock is: s X = (.016850)
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