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WK4 Homework

# WK4 Homework - WEEK 4 HOMEWORK P6-1 You purchase 1,000...

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1 WEEK 4 HOMEWORK P6-1. You purchase 1,000 shares of Spears Grinders Inc. stock for \$45 per share. A year later, the stock pays a dividend of \$1.25 per share and it sells for \$49. a. Calculate your total dollar return. 1,000 x (\$1.25 + \$4) = \$5,250 b. Calculate your total percentage return. (\$49 + \$1.25 - \$45) / \$45 = 11.67%. c. Do the answers to parts (a) and (b) depend on whether you sell the stock after one year or continue to hold it? They do not depend on whether you sell the stock or hold it. P6-2. A financial adviser claims that a particular stock earned a total return of 10 percent last year. During the year the stock price rose from \$30 to \$32.50. What dividend did the stock pay? 0.10 = (\$32.50 + D - \$30) / \$30 = \$0.50. P7-1. a. Over the long run, the risk-premium on stocks relative to Treasury bills has been 7.6 percent in the United States. The current Treasury bill yield is 1.5%, but the historical average return on Treasury bills is 4.1%. Estimate the expected return on stocks and explain how and why you arrived at your answer.
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