CH 12 FINANCE STUDY SHEET

1. A stock had returns of 16 percent, 10 percent, 16 percent, 11 percent, 15 percent, and 11 percent over the last six years.

what is the Arithmetic Return and Geometric Return for the stock?

2. Using the following returns, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y.

Returns Years:

X: 1yr = 7%, 2yr = 25%, 3yr = 14%, 4yr = -15%, 5yr = 16%

Y: 1yr = 21%, 2yr = 42%, 3yr = -9%, 4yr = -23%, 5yr = 50%

Calculate the arithmetic average return for X and Y.

Calculate the variance for X and Y.

3. Suppose you bought a bond with an annual coupon of 14 percent one year ago for $1,000. The bond sells for $1,075 today.

Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?

What was your total nominal rate of return on this investment over the past year?

If the inflation rate last year was 5 percent, what was your total real rate of return on this investment?

4. Youve observed the following returns on Crash-n-Burn Computers stock over the past five years: 5 percent, 13 percent, 25 percent, 14 percent, and 17 percent. The average inflation rate over this period was 3.9 percent and the average T-bill rate was 5.55 percent.

What was the average real return on the company's stock?

What was the average nominal risk premium on the company's stock?

5. Suppose a stock had an initial price of $56 per share, paid a dividend of $1.35 per share during the year, and had an ending share price of $71. Compute the percentage total return.