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Session+11_1_

# Session+11_1_ - 1 CAPITALMARKETTHEORY...

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CAPITAL MARKET THEORY Ross, Westerfield & Jaffe “ Corporate Finance” 7 th ed. Chapters 9 &10 1

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Returns Dollar Returns the sum of the cash received and the change in value of the asset, in dollars. Time 0 1 Initial investment Ending market value Dividends Percentage Returns: the sum of the cash received and the change in value of the asset divided by the original investment. 2
Dollar Return = Dividend + Change in Market Value Returns yield gains capital yield dividend ue market val beginning ue market val in change dividend ue market val beginning return dollar return percentage 3

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Returns: Example Suppose you bought 100 shares of Wal Mart (WMT) one year ago today at \$25. Over the last year, you received \$20 in dividends (= 20 cents per share × 100 shares). At the end of the year, the stock sells for \$30. What return did you earn? You invested \$25 × 100 = \$2,500. At the end of the year, you have stock worth \$3,000 and cash dividends of \$20. Your dollar gain was \$520 = \$20 + (\$3,000 – \$2,500). Your percentage gain for the year is Does it matter if you don’t sell at \$30 but instead hold? \$2,500 \$520 =20.8% 4