Problem #1
Calculating Returns. Suppose a stock had an initial price of $83 per share, paid a dividend of $1.40 per share during the year, and had an ending share price of $71. Compute the percentage total return.
What was the dividend yield?
The capital gains yield?
Problem #2
Calculating Returns. Suppose you bought a 7 percent coupon bond one year ago for $893. The bond sells for $918 today.
a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?
b. What was your total nominal rate of return on this investment over the past year?
c. If the inflation rate last year was 4 percent, what was your total real rate of return on this investment?
Problem #3
Portfolio Expected Return. You own a portfolio that has $1,500 invested in Stock A and $2,600 invested in Stock B. If the expected returns on these stocks are 10 percent and 16 percent, respectively, what is expected return on the portfolio?
Problem #4
Calculating Expected Return. Based on the following information, calculate the expected return.
Stare of Economy Probability of State of Economy Rate of Return if State Occurs
Recession .25 -.09
Normal .45 .11
Boom .30 .30
Problem #5
Returns and Standard Deviations. Consider the following information:
State of Probability of Rate of Return if Occurs
Economy State of Economy Stock A Stock B Stock C
Boom .15 .35 .45 .33
Good .45 .12 .10 .17
Poor .35 .01 .02 -.05
Bust .05 -.11 -.25 -.09
A. Your portfolio is invested 30 percent each in A and C and 40 percent in
B. What is the expected return of the portfolio? What is the variance of this portfolio? The standard deviation?