Topic 6 Expert solutions(1).pdf

Topic 6 Expert solutions(1).pdf - Expert Solutions Topic 6...

Info icon This preview shows pages 1–3. Sign up to view the full content.

Expert Solutions Topic 6: Risk and Return Question 1 i) The dividend of $2 divided by the initial investment of $30. Dividend yield = 2/30 = 0.0666 or 6.67% ii) The share price grew by $5, divided by the initial investment. So $35 subtract $30. Capital gain yield = 5/30 = 0.16666 or 16.67% iii) The total return was $5 + $2 = $7, divided by the initial investment. Return = 7/30 = 0.23333 or 23.33% Question 2 The average return is the sum of the returns, divided by the number of returns. The average return for share X was: % . . . . . N x X N i i 11.40 or .1140 5 17 34 13 04 15 1 Remembering statistics, we calculate the variance of each share as: 1 1 2 2 N x x s N i i X Returns Ri - Rx (Ri-Rx)^2 0.15 0.036 0.001296 0.04 -0.074 0.005476 -0.13 -0.244 0.059536 0.34 0.226 0.051076 0.17 0.056 0.003136 Mean 0.114 Sum 0.12052 Var 0.03013 Std 0.17358 17.36% The standard deviation is the square root of the variance, so the standard deviation of each share is: s X = (.030130) 1/2 s X = .1736 or 17.36%
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Question 3 To find the return on the coupon bond, we first need to find the price of the bond today. Since
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.
  • One '14

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern