1. A stock had the following year-end prices Year Price Deidend and dividends 1.
ID: 2806706 • Letter: 1
Question
1. A stock had the following year-end prices Year Price Deidend and dividends 1.65 What is the arithmetic average rate of return over the five year period? A 10.25 percent B. 656 percent C. 6.13 percent D. 9.20 percent E. 7.36 percent 2. One year ago, you selling for 101.2 percent of par, Today, over the year was 3 percent, what was your real rate of return? purchased a 5 percent coupon bond with a face value of $1,000 when it was you sold this bond for 99.8 percent of par. If inflation A. 0.54 percent B. 0.61 percent C 3.61 percent D. 3.56 percent E. 5.41 percent The lower the standard deviation of returns on a security, the and the the expected rate of return the risk. A. lower; lower B. lower; higher C. higher, lower D. higher, higher You cannot determine anything about the expected rate of return from the standard deviation.Explanation / Answer
1)
Answer ot this E
R1 = (71.65 - 64.78 + 0.69) / 64.78 = 11.67%
R2 = (77.45 - 71.65 + 0.74) / 71.65 = 9.127%
R3 = (63.72 - 77.45 + 0.8) / 77.45 = - 16.69%
R4 = (74.01 - 63.72 + 0.89) / 63.72 = 17.54%
R5 = (84.25 - 74.01 + 0.96) / 74.01 = 15.13%
The arithmetic average return
= 11.67 + 9.127 - 16.69 + 17.54 + 15.13 / 5
= 7.3554%
roughly 7.36%
2)
Answer to this is A
Nominal return = (998 - 1012 + 50) / 1012 = 3.5573%
Real rate = [ ( 1 + Nominal return) / ( 1 + inflation rate ) ] - 1
= 0.0054106 = 0.54106%
3)
Answer to this is A
Lower; Lower
That is if the standard deviation is less we expected less return as the risk is less.
If the standard deviation is more then the risk is more, so we expect more return for the risk we take up.
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