FIN_355_Ch1-Ch4_Homework_and_Solutions[1]

FIN_355_Ch1-Ch4_Homework_and_Solutions[1] - FIN 355...

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FIN 355 Homework Chapter 1 (P38-40): Questions and Problems 1, 2, 3, 5, 6, 18, 19 Chapter 2 (P76-77): Questions and Problems 1, 2, 3, 6, 7, 8, 12, 15, 25 Chapter 3 (P102-104): Questions and Problems 5, 6, 7, 18, 20 Chapter 4 (P142-143): Questions and Problems 3-9, 16, 17
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FIN 355 Homework Solutions Chapter 1 A Brief History of Risk and Return 1. Total dollar return = 100($41 – 37 + 0.28) = $428.00 Whether you choose to sell the stock or not does not affect the gain or loss for the year, your stock is worth what it would bring if you sold it. Whether you choose to do so or not is irrelevant (ignoring commissions and taxes). 2. Capital gains yield = ($41 – 37)/$37 = 10.81% Dividend yield = $0.28/$37 = 0.76% Total rate of return = 10.81% + 0.76% = 11.57% 3. Dollar return = 750($32 – 37 + 0.28) = –$3,540 Capital gains yield = ($32 – 37)/$37 = –13.51% Dividend yield = $0.28/$37 = 0.76% Total rate of return = –13.51% + 0.76% = –12.76% 5. Cherry average return = (17% + 11% – 2% + 3% + 14%) / 5 = 8.60% Straw average return = (16% + 18% – 6% + 1% + 22%) / 5 = 10.20% 6. Cherry: R A = 8.60% Var = 1/4[(.17 – .086) 2 + (.11 – .086) 2 + (–.02 – .086) 2 + (.03 – .086) 2 + (.14 – .086) 2 ] = 0.00623 Standard deviation = (0.00623) 1/2 = 0.0789 or 7.89% Straw: R B = 10.20% Var = 1/4[(.16 – .102) 2 + (.18 – .102) 2 + (–.06 – .102) 2 + (.01 – .102) 2 + (.22 – .102) 2 ] = 0.01452 Standard deviation = (0.01452) 1/2 = 0.1205 or 12.05% 18. R A = (–0.12 + 0.15 + 0.11 + 0.19 - 0.02)/5 = .0620 or 6.20% R G = [(1 – .12)(1 + .15)(1 + .11)(1 + .19)(1 - .02)] 1/5 – 1 = .0555 or 5.55% 19. R 1 = ($25.61 – 23.25 + 0.15) / $23.25 = 10.80% R 2 = ($26.72 – 25.61 + 0.18) / $25.61 = 5.04% R 3 = ($25.18 – 26.72 + 0.20) / $26.72 = –5.01% R 4 = ($27.12 – 25.18 + 0.24) / $25.18 = 8.66% R 5 = ($30.43 – 27.12 + 0.28) / $27.12 = 13.24% R A = (0.1080 + .0504 – .0501 + 0.0866 + 0.1324)/5 = .0654 or 6.54% R G = [(1 + .1080)(1 + .0504)(1 – .0501)(1 + .0866)(1 + .1324)] 1/5 – 1 = .0634 or 6.34%
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FIN_355_Ch1-Ch4_Homework_and_Solutions[1] - FIN 355...

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