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374 mid sample

374 mid sample - COMM374: PracticeMidtermExam 1....

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COMM 374: Applied Financial Markets Practice Midterm Exam 1. The table below reports capital gains and dividend yields of the Equity over one year periods ending last day in December each year. One year period ending Dec 31 1992 Dec 31 1993 Dec 31 1994 Capital gain (P t+1 /P t ) 1.2200 0.8525 1.0865 Dividend yield (D t+1 /P t ) 0.0500 0.1393 0.1250 a) Calculate the simple gross returns on the Equity for each year. b) Calculate the simple net return on the Equity for each year. c) Calculate the arithmetic average of annual gross returns. How does it relate to the geometric average of annual gross returns? You want to track the performance of Equity using an index that has level set to 100 as of Dec 31 1991. d) Calculate the level of the index with dividends (total return index) for each year. e) Calculate the level of the index without dividends (price index) for each year. f) Use the index level on Dec 31 1994 to compute the three year gross return including dividends. 2. You are analyzing monthly log return data on the S&P 500 index. Specifically, you calculated the 6, 12, 18, and 24 month variance ratios for the S&P 500 index log return series. The results are summarized in the table below. S&P 500 Returns 1 period 6 periods 12 periods 18 periods 24 periods Variance 0.00178 0.01231 0.02610 0.03914 0.04977 Variance ratio statistic 1.15329 1.22265 1.22234 1.16557 Standard deviation 11.10% 16.16% 19.78% 22.31% a) Why are variance ratio statistics useful?
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