Ch06 P15 Build a Model Solution.xlsx

# Ch06 P15 Build a Model Solution.xlsx - Solution Chapter...

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Solution 7/16/2015 Chapter: 6 Problem: 15 Data as given in the problem are shown below: Goodman Industries Landry Incorporated Market Index Year Stock Price Dividend Stock Price Dividend Includes Divs. 2016 \$25.88 \$1.73 \$73.13 \$4.50 17,495.97 2015 \$22.13 \$1.59 \$78.45 \$4.35 13,178.55 2014 \$24.75 \$1.50 \$73.13 \$4.13 13,019.97 2013 \$16.13 \$1.43 \$85.88 \$3.75 9,651.05 2012 \$17.06 \$1.35 \$90.00 \$3.38 8,403.42 2011 \$11.44 \$1.28 \$83.63 \$3.00 7,058.96 We now calculate the rates of return for the two companies and the index: Goodman Landry Index 2016 24.8% -1.0% 32.8% 2015 -4.2% 13.2% 1.2% 2014 62.7% -10.0% 34.9% 2013 2.9% -0.4% 14.8% 2012 60.9% 11.7% 19.0% Average 29.4% 2.7% 20.6% Use the function wizard to calculate the standard deviations. Goodman Landry Index Standard deviation of returns 31.4% 9.7% 13.8% On a stand-alone basis, it would appear that Goodman is the most risky, Landry the least risky. a. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2010 because you do not have 2009 data.)

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