Question
1.Suppose a stock had an initial price of $91 per share, paid a dividend of $2.40 per share during the year, and had an ending
1.Suppose a stock had an initial price of $91 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $102. Compute the percentage total return.
2.Suppose you bought a 7% coupon bond one year ago for $1,040. The bond sells for $1,070 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?
4.Refer to Table 12.1in the textbook and look at the period from 1970 through 1975.
a.Calculate the arithmetic average returns for large-company stocks and T-bills over this period.
b.Calculate the standard deviation of the returns for large-company stocks and T-bills over this period.
c.Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period? What was the standard deviation of the risk premium over this period?
d.Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.
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