1) Investments
1A)
What are the two components to total return? What does expected value measure? What does standard deviation measure? How can each result be used to help us purchase securities?
1B)
|
DATE
|
PRICE
|
DIVIDEND
|
|
Jan 2000
|
100.00
|
0.00
|
|
Jan 2001
|
121.55
|
2.25
|
|
Jan 2002
|
139.81
|
2.55
|
|
Jan 2003
|
138.01
|
2.02
|
|
Jan 2004
|
141.22
|
1.01
|
|
Jan 2005
|
204.23
|
3.09
|
|
Jan 2006
|
201.29
|
2.98
|
|
Jan 2007
|
169.31
|
1.92
|
|
Jan 2008
|
141.40
|
1.33
|
|
Jan 2009
|
140.55
|
1.25
|
|
Jan 2010
|
139.02
|
1.11
|
Calculate the total return:
From Jan 2000 to Jan 2010
From Jan 2000 to Jan 2003
From Jan 2003 to Jan 2004
Calculate the standard deviation of price
From Jan 2001 to Jan 2002
From Jan 2002 to Jan 2008
2) Equities
2A)
Why is a healthy equity market important for a country?
What alternatives exist for funding if companies can't raise money in the equity markets?
2B)
Calculate the share price of a company the pays a fixed dividend of £2.30 pa when the required rate of return demanded by equity investors is 3%. What will the price be if investors demand 12% to hold these same shares? What will be the price if investors demand 3% to hold these same shares?
What will the share price be under all three scenarios if dividends grow by a rate of 1.5% pa?