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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
Markets Financial markets allow companies, governments and
individuals to increase their utility
individuals Savers have the ability to invest in financial assets so that they
can defer consumption and earn a return to compensate them
for doing so
Borrowers have better access to the capital that is available so
that they can invest in productive assets
that Financial markets also provide us with information
about the returns that are required for various levels of
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
Bonds 5.8% U.S. Treasury Bi...
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