Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Post-WWII Annual Returns: Year S&P 500 Stocks 3-month T.Bill 1946 -8.43% 0.38% 1947 5.20% 0.57% 1948 5.70% 1.02% 1949 18.30% 1.10% 1950 30.81% 1.17% 1951

Post-WWII Annual Returns:
Year S&P 500 Stocks 3-month T.Bill
1946 -8.43% 0.38%
1947 5.20% 0.57%
1948 5.70% 1.02%
1949 18.30% 1.10%
1950 30.81% 1.17%
1951 23.68% 1.48%
1952 18.15% 1.67%
1953 -1.21% 1.89%
1954 52.56% 0.96%
1955 32.60% 1.66%
1956 7.44% 2.56%
1957 -10.46% 3.23%
1958 43.72% 1.78%
1959 12.06% 3.26%
1960 0.34% 3.05%
1961 26.64% 2.27%
1962 -8.81% 2.78%
1963 22.61% 3.11%
1964 16.42% 3.51%
1965 12.40% 3.90%
1966 -9.97% 4.84%
1967 23.80% 4.33%
1968 10.81% 5.26%
1969 -8.24% 6.56%
1970 3.56% 6.69%
1971 14.22% 4.54%
1972 18.76% 3.95%
1973 -14.31% 6.73%
1974 -25.90% 7.78%
1975 37.00% 5.99%
1976 23.83% 4.97%
1977 -6.98% 5.13%
1978 6.51% 6.93%
1979 18.52% 9.94%
1980 31.74% 11.22%
1981 -4.70% 14.30%
1982 20.42% 11.01%
1983 22.34% 8.45%
1984 6.15% 9.61%
1985 31.24% 7.49%
1986 18.49% 6.04%
1987 5.81% 5.72%
1988 16.54% 6.45%
1989 31.48% 8.11%
1990 -3.06% 7.55%
1991 30.23% 5.61%
1992 7.49% 3.41%
1993 9.97% 2.98%
1994 1.33% 3.99%
1995 37.20% 5.52%
1996 23.82% 5.02%
1997 31.86% 5.05%
1998 28.34% 4.73%
1999 20.89% 4.51%
2000 -9.03% 5.76%
2001 -11.85% 3.67%
2002 -21.97% 1.66%
2003 28.36% 1.03%
2004 10.74% 1.23%
2005 4.83% 3.01%
2006 15.61% 4.68%
2007 5.48% 4.64%
2008 -36.55% 1.59%
2009 25.94% 0.14%
2010 14.82% 0.13%
2011 2.10% 0.03%
2012 15.89% 0.05%
2013 32.15% 0.07%
2014 13.52% 0.05%
2015 1.36% 0.21%
2016 11.74%

0.51%

We are given the information that Microthins stock price was $21 in December 2012, $29 in December 2013, $27 in December 2014, $20 in December 2015, and $26 in December 2016. It also pays annual dividend amounts varying from 2012 through 2016.

Let's assume you do the following transactions:

a) In December 2012: buy 30,000 Microthin shares;

b) In December 2013: collect the dividends ($0.39 per share) on your shares, and then sell 10,000 shares;

c) In December 2014: collect the dividends ($0.43 per share) on your remaining shares, and then buy another 15,000 shares;

d) In December 2015: collect the dividends ($0.50 per share) on your remaining shares, and then sell another 10,000 shares.

e) In December 2016: collect the dividends ($0.52 per share) on your remaining shares, and then sell all your remaining shares.

A) What should be the IRR during the "December 2012 December 2016" period for your Microthin stock investment?

B) The year-by-year annual returns after the World War II are provided on the Excel answer sheet, the tab Case 3. Use =AVERAGE function to compute the post-WWII average return for S&P stock market index (Rm) and for US risk-free T-bill (Rf), respectively. With such Rm and Rf amounts, and if Microthins stock beta = 1.25, what shall be the required return on Microthin stock (using CAPM)? Be careful, CAPM is for long-term stock market equilibrium, so you should NOT only use the short 2012-2016 four-year-average stock data only for CAPM purpose. Use the provided whole long-term period as CAPM data source.

C) Based on your answers to Q1 and Q2, is your Microthin stock investment over the "Dec 2012 Dec 2016"period good or bad (using NPV and IRR rules)?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Financial Management

Authors: Jeff Madura, Roland Fox

4th Edition

147372550X, 9781473725508

More Books

Students also viewed these Finance questions

Question

=+a) Draw the decision tree.

Answered: 1 week ago

Question

identify sources of secondary data across organisations;

Answered: 1 week ago