chapter 12 homework

One year ago, you purchased 100 shares of Best Wings stock at a price of $38.19 a share. The company pays an annual dividend of $.46 per share. Today, you sold for the shares for $37.92 a share. What is your total percentage return on this investment?

.50%

The common stock of Air Express had annual returns of 11.7 percent, 8.8 percent, 16.7 percent, and −7.9 percent over the last four years, respectively. What is the standard deviation of these returns?

10.66%

Suppose a stock had an initial price of $62 per share, paid a dividend of $1.10 per share during the year, and had an ending share price of $74.

21.13% R = ($74 - 62 + 1.10)/$62 R = .2113, or 21.13%

You bought one of Great White Shark Repellant Co.'s 8 percent coupon bonds one year ago for $1,059. These bonds make annual payments and mature 10 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7 percent. The bonds have a par value of $1,000. If the inflation rate was 4.8 percent over the past year, what was your total real return on investment?

3.64% P1 = $80(PVIFA7%,10) + $1,000(PVIF7%,10) P1 = $1,070.24 R = ($1,070.24 - 1,059 + 80)/$1,059 R = .0862, or 8.62% r = (1.0862/1.048) - 1 r = .0364, or 3.64%

A stock had returns of 5 percent, 14 percent, 11 percent, −8 percent, and 6 percent over the past five years. What is the standard deviation of these returns?

8.44%

A stock has had returns of 12 percent, 30 percent, 17 percent, −18 percent, 30 percent, and −7 percent over the last six years. What are the arithmetic and geometric average returns for the stock?

Arithmetic average return 10.67% Geometric average return 9.13% Arithmetic average return = (.12 + .30 + .17 - .18 + .30 - .07)/6 Arithmetic average return = .1067, or 10.67% Geometric average return = [(1 + .12)(1 + .30)(1 + .17)(1 - .18)(1 + .30)(1 - .07)](1/6) - 1 Geometric average return = .0913, or 9.13%

Which of the following statements are true based on the historical record for 1926-2016?

Bonds are generally a safer, or less risky, investment than are stocks.

Suppose a stock had an initial price of $80 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $88. What was the dividend yield and the capital gains yield?

Dividend 0.75% Capital Gains 10.00% Dividend yield = $.60/$80 Dividend yield = .0075, or .75% Capital gains yield = ($88 - 80)/$80 Capital gains yield = .1000, or 10.00%

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Efficient capital market

Which one of the following correctly describes the dividend yield?

Next year's annual dividend divided by today's stock price

Which one of the following categories of securities had the highest average annual return for the period 1926-2016?

Small-company stocks

Which one of the following best defines the variance of an investment's annual returns over a number of years?

The average squared difference between the actual returns and the arithmetic average return

Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment?

The capital gains yield is positive.

Suppose a stock had an initial price of $84 per share, paid a dividend of $1.50 per share during the year, and had an ending share price of $73. Compute the percentage total return, dividend yield, and capital gains yield.

Total Return -11.31% Dividend 1.79% Capital Gain -13.10% R = ($73 - 84 + 1.50)/$84 R = −.1131, or −11.31% Dividend yield = $1.50/$84 Dividend yield = .0179, or 1.79% Capital gains yield = ($73 - 84)/$84 Capital gains yield = −.1310, or −13.10%

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016?

U.S. Treasury bills

Standard deviation is a measure of which one of the following?

Volatility

The return earned in an average year over a multiyear period is called the _____ average return.

arithmetic

The average compound return earned per year over a multiyear period is called the _____ average return.

geometric

Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return?

risk premium