Chapter 11
Risk and Return in Capital Markets
Note: All problems in this chapter are available in MyFinanceLab. An asterisk (*) indicates problems with a higher level of difficulty.
1. Plan: Compute the realized return on this equity investment.
Execute:
R =
Evaluate: The realized return on the equity investment is 21.25%.
2. Plan: Split the realized return into the dividend and capital gain yields.
Execute:
Rdiv. = 2/80 = 2.5%
Rcapital gain = (95 – 80)/80 = 18.75%
Evaluate: The dividend yield is 2.5% and the capital gain yield is 18.75%, thus the bulk of the return came from price appreciation.
3. Plan: Compute the capital gain and dividend yield under the assumption that the stock price has fallen to $68.
Execute:
a. New rcapital gain = (68 – 80)/80 = –15%
Yes, the capital gain is different, becau the difference between the current price and the purcha price is different than in Problem 1.
b. The dividend yield does not change, becau the dividend is the same as in Problem 1.
Evaluate: Thus, the capital gain changes with the new lower price; the dividend yiel
d does not change.
4. a. Your investment in CSH is 100 × $20 = $,2000; in EJH it is 50 × $30 = $1,500, so your total investment is $3,500. Your weights are 2,000/3,500 = 0.57 and 1,500/3,500 = 0.43.
b. There are two ways to calculate this. You can either compute the return on each stock and multiply tho returns by their weights, or you can compute the total change in the value of your portfolio:
CSH: (23 – 20)/20 = 0.15 ; EJH: (29 – 30)/30 = –0.033, so the return on your portfolio is:
(0.57)(0.15) + (0.43)(–0.033) = 0.071
Or: your investment in CSH goes from $2,000 to $2,300 and in EJH goes from $1,500 to $1,450. Your portfolio has a net gain of $300 – $50 = $250. As a return, that is $250 / $3,500 = 0.071
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[NOTE: the calculations would always yield exactly the same answer unless you round during the process]
5. Plan: Compute the future sale price that is necessary to produce a 12% return.
Execute:
P1 = 37.7
Evaluate: Thus, the lling price immediately after the dividend would need to be 37.7 for you to earn a 12% return on the investment.
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6. Plan: Compute each period’s return as the price change + dividend divided by the initial price (e Eq. 11.1). Then compute the annual realized return as the product of 1 + each period’s return and then subtract off the 1 (e Eq. 11.2):
Execute:
R =节日古诗 (1 + 0.136)(1 + 0.152)(1 + 0.106)(1 - 0.024) -1 = 1.413 – 1 = 0.413
Evaluate: In this ca, the annual realized return is the compound return of the quarterly returns, taking into account both the dividends and price changes.
7.
8. Given the data prented, make the calculations requested in the question.
a. Average annual return
= (–7% +23% +18% +6%)/4
= 10%
b. Variance of returns =
= 179.33333
c. Standard deviation of returns = 13.39%
The average annual return is 10%. The variance of return is 179.33. The standard deviation of returns is 13.39%.
9. (See also SBUX_GOOG_ans.xlsx)
贺年歌曲a. 0.2186, 0.2363 with dividends
b. 0.0751
c. (0.30)(0.2363) + (0.70)(0.0751) = 0.1235
10. Plan: Download the Excel spreadsheet data and analyze it.
Execute: a/b. Using Excel:
| S&P 500 | Small Stocks | Corp Bonds | World Portfolio | Treasury Bills | CPI |
Average | 2.553% | 16.550% | 5.351% | 2.940% | 0.859% | -1.491% |
Variance: | 0.1018 | 0.6115 | 0.0013 跳绳锻炼 | 0.0697 | 0.0002 | 0.0022 |
Standard
Deviation: |
31.904%
|
78.195%
| 蝉鸣的夏季
3.589%
|
26.398%
|
1.310%
|
4.644%
|
| | | | | | | 陪伴用英语怎么说
Evaluate:
c. The riskiest asts were the small stocks. Intuition tells us that this ast class would be the riskiest.
11. Plan: For part (a), to compute the arithmetic average, u Eq.11.3. For part (b), to compute the geometric average, take the product of 1 + each return and then take the 10th root of that product (e the box on page 341). For part (c), realize that the total return computed in part (b) before taking the average can be applied directly to the $100.
Execute:
a. Using Eq. 11.3:
(-0.1993 + 0.166 + 0.18 - 0.5 + 0.433 + 0.012 - 0.165 + 0.456 + 0.452 - 0.03)/10 = 0.0805
*b. (0.801)(1.166)(1.180)(0.500)(1.433)(1.012)(0.835)(1.456)(1.452)(0.970) = 1.3683
. Subtracting the 1, we get the geometric average of 0.0319.
c. In part (b) we computed the total realized return as the product of 1 + each year’s return.
We would have earned that return on the $100, so the answer is $100(1.3683) = $136.83.
Evaluate:
The geometric average return is a better reprentation of what actually happened. However,
the arithmetic average is a better estimate of what you can expect to happen in any given year
中国曲阜(if you were trying to forecast the return for next year, for example).
