22. Based on the period 1926-2012, the risk premium for U.S. Treasury bills was:

Question

22. Based on the period 1926-2012, the risk premium for U.S. Treasury bills was: A. 0.0 percent B.1.2 percent. C. 2.0 percent. D. 2.4 percent. E. 2.7 percent. 23.One year ago, you purchased 400 shares of stock at a cost of $8,650. The stock paid an annual dividend of $1.10 per share. Today, you sold those shares for $23.90 A. 9.96 percent B. 10.52 percent C. 12.49 percent D. 13.33 percent E. 14.75 percent 24. A stock sold for $25 at the beginning of the year. The end of year stock price was S25.70. What is the amount of the annual dividend if the total return for the year was 7.7 percent? A. $1.23 B. $1.38 C. $1.60 D. $1.81 E. $2.31 25. Elise just sold a stock and realized a 6.2 percent return for a 4-month holding period. What was her annualized rate of return? A. 11.98 percent B. 14.78 percent C. 19.78 percent D. 21.29 percent E. 27.20 percent 26. Eight months ago, you purchased 300 shares of a non-dividend paying stock for $27 a share. Today, you sold those shares for $31.59 a share. What was your annualized rate of return on this investment? A. 17.00 percent 8. 21.45 percent C. 25.50 percent D. 26.55 percent

Explanation / Answer

22. 0.0 percent

23. 400 shares purchased at $8,650. The shares were sold at a price of $23.90 each. When we calculate the capital gains yield, we do not consider the dividend gains.

Total selling value of shares = 23.90 * 400 = $9,560

Capital Gains = Selling Value of shares - Purchase Value of shares = 9,560 - 8,650 = $910

Capital Gains Yield = (Capital Gains/Purchase Value of Shares) * 100 = (910/8650) * 100 = 10.52%

24. Annual Return = 7.7% = Capital Return + Dividend Return

Capital Gains = Selling Value of shares - Purchase Value of shares = 25.70-25 = $0.7

Capital Return = (Capital Gains/Purchase Value of Shares) * 100 = (0.7/25) * 100 = 2.8%

Dividend Return = Annual Return - Capital Return = 7.7 - 2.8 = 4.9%

Annual Dividend = Dividend Return * Original (Purchase) Price of Share = 4.9% * 25 = 0.049 * 25 = 1.23%

25. Annualised Return = (1 + r(n))^(1/n) - 1

r(n) = 6.2%

n = 4 months = 4/12 years

Annualised Return = (1 + 0.062)^(1/(4/12)) - 1 = 19.78%

26. Holding Period Return = (Selling Value of shares - Purchase Value of shares)/Purchase Value of shares *100 = (31.59 - 27)/27 = 17% = 0.17

Annualised Return = (1 + r(n))^(1/n) - 1

r(n) = 17%

n = 8 months = 8/12 years

Annualised Return = (1 + 0.17)^(1/(8/12)) - 1 = 26.55%

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