Dividendyield12535357 capitalgainsyield4035351429

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Unformatted text preview: tock is now selling for $40. 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% Figure 12.4 Figure 12.4 Average Returns Average Returns Investment Average Return Large stocks 12.4% Small Stocks 17.5% Long­term Corporate Bonds 6.2% Long­term Government Bonds 5.8% U.S. Treasury Bills 3.8% Inflation 3.1% Risk Premiums Risk Premiums The “extra” return earned for taking on risk Treasury bills are considered to be risk­free The risk premium is the return over and above the risk­free rate Calculate Historical Risk Premiums Calculate Historical Risk Premiums Large stocks: 12.4 – 3.8 = 8.6 % Small stocks: 17.5 – 3.8 = 13.7 % Long­term corporate bonds: 6.2 – 3.8 = 2.4 % Long­term government bonds: 5.8 – 3.8 = 2.0 % Table 12.3 Average Annual Returns Table 12.3 Average Annual Returns and Risk Premiums Investment Average Return Risk Premium Large stocks 12.4% 8.6% Small Stocks 17.5% 13.7% Long­term Corporate Bonds Long­term Government Bonds U.S. Treasury Bills 6.2% 2.4% 5.8% 2.0% 3.8...
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This document was uploaded on 01/14/2014.

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