Homework: Chapter 7 Homework Score: 0 of 2 pts P7-2 (similar to) Save 2 of 8 (1
ID: 2619070 • Letter: H
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Homework: Chapter 7 Homework Score: 0 of 2 pts P7-2 (similar to) Save 2 of 8 (1 complete) HW Score: 7.69%, 2 of Question Help ! (Calculating rates of return) The S&P; stock index represents a portfolio 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 877. 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)? The rate of return earned on the S&P; 500 is []%. (Round to two decimal places.)Explanation / Answer
Return on S& P index = [(Index Value End – Index Value Beginning) / Index value beginning ]+ Dividend rate
Return on S& P index = [(877 – 1410) / 1410 ]+ 4.5%
Return on S& P index = -0.3780 + 4.5%
Return on S& P index = -0.3330 or -33.30%
in general, investing in a single stock is riskier than investing in the S& P index.
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