Risk and Return Problems finance exam 3

# Risk and Return Problems finance exam 3 - return on the...

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Risk and Return Problems 1. 1.You buy a stock for \$62.50 per share and hold it for one year. During the year, the stock paid a dividend of \$1.50 and the year end stock price was \$71.25. What was your holding period return on the stock? Also, divide the return of the stocks into two components: the dividend yield and the capital gains component. (16.4%, DY=2.4%, CGY=14%) 2. Suppose you had bough a second stock when you cough the one in problem one for \$44 per share. The second stock paid a dividend of \$1.00 during the year and was selling for \$38 at the end of the year. Assume you had put 40 percent of your money in the stock in problem one, and 60% in the stock in this problem, what was your return on the portfolio for the year? R2= -11.36% and Rpt= -.256%) 3. Your purchase a 7.5 percent, 20 year, \$1,000 face value bond for \$965. After a year, the bond is selling for \$1,020. What was your holding period return on the bond during the year? (13.47%) 4. Assuming the inflation rate for the year was 3.5%, what was your real rate of

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Unformatted text preview: return on the bond in problem 3? (9.63%) 5. Suppose risk free rate is 6% and the risk premium on the market is estimated to be 6.5%. Given that you estimate ABC’s beta to be 1.4, what is the required rate of return on ABC’s common stock? (15.1%) 6. The year end prices and the dividends paid by stocks A and B are shown below Year: 2001 2002 2003 2004 2005 2006 Year end stock prices: Stock A 30.50 27.52 29.58 35.78 44.42 39.78 Stock B 43.32 38.65 36.42 48.35 61.54 54.17 Dividend paid during year: Stock A-.52 .54 .56 .58 .61 Stock B-.60 .60 .70 .70 .70 a. Calculate the annual return for both stocks A and B for each year from 2002-2006 b. Calculate the annual return on an equally weighted portfolio of stocks A and B for each year. c. Calculate the arithmetic mean annual return(AMR) and the geometric mean annual return (GMR) for the five year period for both stocks. d. Calculate the standard deviation of the annual returns for each stock....
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## This note was uploaded on 03/21/2012 for the course FIN 3403 taught by Professor Unknown during the Fall '08 term at FSU.

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Risk and Return Problems finance exam 3 - return on the...

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