7.6

7.7

(Calculating rates of return) The S\&P stock index represents a porttolio comprised of 500 large publicly traded companies. On December 24,2007 , the index had a value of 1,410 and on December 24,2008 , the index was approximately 869 . If the average dividend paid on the stocks in the index is approximately 4.5 percent of the value of the index at the beginning of the year, what is the rate of return earned on the S\&P index? What is your assessment of the relative riskiness of investing in a single stock such as Google compared to investing in the S\&P index (recall from Chapter 2 that you can purchase mutual funds that mimic the returns of the index)? (Calculating rates of return) Blaxo Balloons manufactures and distributes birthday balloons. At the beginning of the year Blaxo's common stock was selling for $22.32 but by year end it was only $19.94. If the firm paid a total cash dividend of $2.88 during the year, what rate of return would you have earned if you had purchased the stock exactly one year ago? What would your rate of return have been if the firm had paid no cash dividend