could someone please check the homework I have done and let me know if it is correct? and if not, what my errors were?

Thomas Childs - Homework Assignment 3 Stock A and Stock B prices and dividends, along with the Market Index, are shown below. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. 2016 2015 2014 2013 2012 2011 Stock A: Stock Price Dividend $25.88 $1.73 $22.93 $1.59 $24.75 $1.50 $16.13 $1.43 $17.16 $1.35 $11.44 $1.28 Stock B: Stock Price Dividend $73.13 $4.50 $78.45 $4.35 $73.13 $4.13 $85.88 $3.75 $90.00 $3.38 $86.33 $3.00 Market Index $17.09 $13.27 $13.01 $9.96 $8.40 $7.05 1. Use the data given to calculate annual returns for Stock A, Stock B, and the Market Index, and then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index.) Stock A: 2012: (17.16-11.44)+1.35/11.44 = 2013: (16.13-17.16)+1.43/17.16= 2014: (24.75-16.13)+1.5/16.13= 2015: (22.93-24.75)+1.59/24.75= 2016: (25.88-22.93)+1.73/22.93= Avg. Annual Return: 61.801% 2.331% 62.740% -.0929% 20.410% 29.437% Stock B 2012: (90-86.33)+3.38/86.33= 2013: (85.88-90)+3.75/90= 2014: (73.13-85.88)+4.13/85.88= 2015: (78.45-73.13)+4.35/73.13= 2016: (73.13-78.45)+4.5/78.45= Avg. Annual Return: 8.166% -.0411% -10.037% 13.223% -1.045% 2.053% Market Index 2012: (8.40-7.05)/7.05= 2013: (9.96-8.4)/8.4= 2014: (13.01-9.96)/9.96= 2015: (13.27-13.01)/13.01= 2016: (17.09-13.27)/13.27= Avg. Annual Return: 19.149% 18.571% 30.622% 1.998% 28.787% 19.825% 2. Calculate the standard deviations of the returns for Stock A, Stock B, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.) Standard Deviation = [1 * (ri - rave)2] where: ri = actual rate of return rave = average rate of return n = number of time periods Stock A: 2012 = (61.801-29.437)2 = 1047.43 2 2013 = (2.331-29.437) = 734.74 2014 = (62.740-29.437)2 = 1109.09 2 2015 = (-.0929-29.437) = 872.01 2016 = (20.410-29.437)2 = 81.49 (3844.76/5) = (768.95) = 27.73 Stock B 2012 = (8.166-2.053)2 2013 = (-.0411-2.053)2 2014 = (-10.037-2.053)2 2015 = (13.223-2.053)2 2016 = (-1.045-2.053)2 = = = = = 37.37 4.39 146.17 125.28 9.46 (322.67/5) = (64.53) = 8.03 Market Index 2012 = (19.149-19.825)2 2013 = (18.571-19.825)2 2014 = (30.622-19.825)2 2015 = (1.998-19.825)2 2016 = (28.787-19.825)2 = = = = = -.676 -1.254 10.797 -17.827 8.962 (.002/5) = (.0004) = .02 3. What dividends do you expect for Stock A over the next three years if you expect the dividend to grow at the rate of 3% per year for the next three years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50. Dividends for Stock A over next 3 years, with 3% annual growth: Beginning Stock Price, $27.88 at 29.44% annual growth rate, $1.50 dividends at 3% growth 2016: $27.88 x 1.50 dividend = $41.82 2017: ($27.88x29.44%)+27.88 = 36.09 x 1.545 dividend = $55.76 2018: (36.09x29.44%)+36.09 = 46.71 x 1.59 dividend = $74.33 2019: (46.71x29.44%)+46.71 = 60.46 x 1.638 dividend = $99.02 4. Assume that Stock A has a required return of 13%. You will use this required return rate to discount the dividends calculated earlier. If you plan to buy the stock, hold it for three years, and then sell it for $27.05, what is the most you should pay for it? The most I should pay for Stock A today, if 13% required return, 3 year hold, and $27.05 sell price? Present Value = FV/(1+k)n PV = 27.05/(1+13%)3 PV = $18.75 3 Year Dividend Payout at 3% growth (1.545 + 1.59 + 1.638) = $4.773 $18.75 - $4.773 = $13.98 per share is the most you should pay