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%

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Question 3
To find the return on the coupon bond, we first need to find the price of the bond today. Since

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