Business Finance Ch 10 Quiz - Connect
You find a certain stock that had returns of 14.2 percent, -22.1 percent, 28.1 percent, and 19.1 percent for four of the last five years. Assume the average return of the stock over this period was 12.2 percent. a.What was the stock's return for the missing year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the standard deviation of the stock's returns? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
(a) Average return=Total returns/Total time period 12.2=(14.2-22.1+28.1+19.1+x)/5[where x=return for missing year] (12.2*5)=39.3+x x=(61-39.3) x = 21.7% missing from year (b) Return (Return-mean)^2 14.2 (14.2-12.2)^2=4 -22.1 (-22.1-12.2)^2=1176.49 28.1 (28.1-12.2)^2=252.81 19.1 (19.1-12.2)^2=47.61 21.7 (21.7-12.2)^2=90.25 Total = 1571.16% Standard deviation=[Total (Return-mean)^2/(Time Period-1)]^(1/2) Standard deviation=[1571.16/(5-1)]^(1/2) Standard deviation=(1571.16/4)^(1/2) Standard deviation=19.82%(Approx).
You've observed the following returns on Yamauchi Corporation's stock over the past five years: -27 percent, 15 percent, 33 percent, 3 percent, and 22 percent. a.What was the arithmetic average return on the stock over this five-year period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.What was the variance of the returns over this period? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) c.What was the standard deviation of the returns over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
(a) Avg return = 9.20% (b) Variance = 0.052820 (c) Standard deviation = 22.98% Work shown: https://gyazo.com/98c299ce902a9b229941cd0a0809b7a0
You've observed the following returns on Yamauchi Corporation's stock over the past five years: -24.6 percent, 13.4 percent, 29.8 percent, 2.2 percent, and 21.2 percent. The average inflation rate over this period was 3.22 percent and the average T-bill rate over the period was 4.3 percent. a.What was the average real risk-free rate over this time period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.What was the average real risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
(a) Avg return of past 5 yrs = (- 24.6% + 13.4% + 29.8% + 2.2% + 21.2%) / 5 Avg return of past 5 yrs = 0.084 Avg real return = [ (1 + 0.084) / (1 + 0.0322) ] - 1 Avg real return = 5.02% (b) Avg nominal risk premium = 8.4% - average T bill rate Avg nominal risk premium = 8.4% - 4.3% Avg nominal risk premium = 4.10% (WRONG)
Suppose a stock had an initial price of $95 per share, paid a dividend of $2.60 per share during the year, and had an ending share price of $77.00. a.Compute the percentage total return. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.What was the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. )c.What was the capital gains yield? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
(a) Initial price = $95 Dividend = $2.60 Ending price = $77 Total return = endning price - initial price + dividend Total return = 77 - 95 + 2.6 Total return = -15.4 Percentage total return = -15.4/initial price Percentage total return = -15.4/95 Percentage total return = -16.21% (b) Dividend yield = Annual div per share/ current share price Dividend yield = 2.60/95 Dividend yield = 2.74% (c) Capital gain = Ending price - Initial price Capital gains = 77 -95 Capital gain = -18 Capital gains yield = (Ending price - Initial price)/ Initial price Capital gains yield = (77-95)/95 Capital gains yield = -18.95%
Suppose the returns on an asset are normally distributed. The historical average annual return for the asset was 6.3 percent and the standard deviation was 16.3 percent. a.What is the probability that your return on this asset will be less than -3.7 percent in a given year? Use the NORMDIST function in Excel® to answer this question. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What range of returns would you expect to see 95 percent of the time? (Enter your answers for the range from lowest to highest. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c.What range of returns would you expect to see 99 percent of the time? (Enter your answers for the range from lowest to highest. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
(a) Probability Excel = NORMDIST(-3.7%,6.3%,16.3%,True) Probability of return is less than -3.7% (b) at 95% Expected range of returns = Mean - [2 x Standard deviation] Expected range of returns = 6.3% - [2x16.3%] Expected range of returns = -26.30% AND 38.90% (c) at 99% Expected range of returns = Mean - [2 x Standard deviation] Expected range of returns = 6.3% - [3x16.3%] Expected range of returns = -42.60% AND 55.20%
Consider the following information on large-company stocks for a period of years. Arithmetic Mean Large-company stocks12.9% Inflation3.4 a.What was the arithmetic average annual return on large-company stocks in nominal terms? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.What was the arithmetic average annual return on large-company stocks in real terms? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
(a)-The arithmetic average annual Nominal return = 12.9% reason: The arithmetic average annual return on large-company stocks in nominal terms is 12.90% (The rate given in the question) (b)The arithmetic average annual return Real Rate of Return = [(1 + Nominal Rate) / (1 + Inflation Rate)] - 1 Nominal Rate = 12.90% Inflation Rate = 3.40% Real return of return = [(1 + Nominal Rate) / (1 + Inflation Rate)] - 1 Real return of return = [1.1290 / 1.0340] - 1 Real return of return = 0.091876209 or 9.19%
A stock has had returns of −19.2 percent, 29.2 percent, 26.4 percent, −10.3 percent, 35 percent, and 27.2 percent over the last six years. What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Arithmetic avg return = 14.72% Geometric avg return = 12.55% Work shown: https://gyazo.com/5badb4805a0aef9358f389a793f6f0cd
A stock has had the following year-end prices and dividends: YearPriceDividend1$ 64.28 — 271.15 $ .59 376.95 .64 463.22 .70 573.01 .79 679.25 .86 What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Arithmetic avg return = 6.04% Geometric avg return = 5.31% Work shown: https://gyazo.com/552d824f457b3357789512d0e82ad078
Consider the following table for a seven-year period: Returns Year U.S. Treasury Bills Inflation 1 3.60% −1.18% 2 3.45 −2.32 3 4.35 −1.22 4 4.77 0.64 5 2.57 −6.46 6 1.45 −9.38 7 1.18 −1.33 What was the average real return for Treasury bills for this time period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Average realm return = 6.38% Work shown: https://gyazo.com/173d317a45b74e444358b9604175de39
Consider the following table for a period of six years: ReturnsYearLarge-Company StocksU.S.Treasury Bills 1 -14.89% 7.33% 2 -26.53 8.01 3 37.27 5.91 4 23.97 5.27 5 -7.24 5.47 6 6.61 7.70 a-1.Calculate the arithmetic average returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2.Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. b-1.What was the arithmetic average risk premium over this period? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-2.What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a-1. Arithmetic avg return Large-company stocks = 3.18% T-bills = 6.62% a-2. Standard deviation Large-company stocks = 24.20% T-bills = 1.20% b-1. Avg risk premium = -3.43% b-2. Risk premium standard deviation = 24.97% Work shown: https://gyazo.com/d95a7685533142b42879d98bfa7a82f9