1.) suppose we have the following returns for large-company stocks

1.)      Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

Year

Large Company

US Treasury Bill

1

   3.66

4.66

2

  14.44

2.33

3

  19.03

4.12

4

–14.65

5.88

5

–32.14

4.90

6

  37.27

6.33


 

 

 

 

 

 

a.)      Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the arithmetic average risk premium over this period?

b.)      Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period?

 

2.)      You’ve observed the following returns on Yasmin Corporation’s stock over the past five years: 10 percent, –10 percent, 17 percent, 22 percent, and 10 percent.

a.        What was the variance of Yasmin’s returns over this period?

 

3.)      You bought one of Bergen Manufacturing Co.’s 5.2 percent coupon bonds one year ago for $1,055. These bonds make annual payments and mature fourteen years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 4 percent.

                 If the inflation rate was 3.4 percent over the past year, what would be your total real return on the                    investment?

 

4.)       You’ve observed the following returns on Yasmin Corporation’s stock over the past five years: 11 percent, –11 percent, 18 percent, 23 percent, and 10 percent. Suppose the average inflation rate over this period was 2 percent and the average T-bill rate over the period was 3.1 percent.

What was the average real risk-free rate over this time period?

               What was the average real risk premium?

 

5.)      Suppose a stock had an initial price of $60 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $53.

            Compute the percentage total return.

What was the dividend yield and the capital gains yield?

 

6.)     Suppose a stock had an initial price of $72 per share, paid a dividend of $2.60 per share during the year, and had an ending share price of $84.

Compute the percentage total return.

 

 

7.)     Suppose the returns on an asset are normally distributed. The historical average annual return for the asset was 7.5 percent and the standard deviation was 12.5 percent.

    What range of returns would you expect to see 95 percent of the time?

 95% level

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to

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What range would you expect to see 99 percent of the time?

 99% level

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