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25 the stock is now selling for 40 now what is your

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Unformatted text preview: tock is now selling for $40. now What is your dollar return? • Dollar return = 1.25 + (40 – 35) = $6.25 What is your percentage return? • Dividend yield = 1.25 / 35 = 3.57% • Capital gains yield = (40 – 35) / 35 = 14.29% • Total percentage return = 3.57 + 14.29 = 17.86% 4 The Importance of Financial The Markets Markets Financial markets allow companies, governments and Financial individuals to increase their utility individuals Savers have the ability to invest in financial assets so that they Savers can defer consumption and earn a return to compensate them for doing so for Borrowers have better access to the capital that is available so Borrowers that they can invest in productive assets that Financial markets also provide us with information Financial about the returns that are required for various levels of risk risk 5 Figure 12.4 6 Average Returns Investment Average Return Large stocks 12.3% Small Stocks 17.4% Long-term Corporate Bonds 6.2% Long-term Government Long-term Bonds Bonds 5.8% U.S. Treasury Bi...
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