6 Percent Preferred Stock For 95.12
8. Risk Premiums. Refer to Table 10.1 in the text and look at the period from 1973
through 1978.
a. Calculate the arithmetic average returns for large-company stocks and T-bills over this time period.
b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period.
c. Calculate the observed risk premium in each year for the large-company stocks versus the T-bi 11 >. What was the arithmetic average risk premium over this period1.' What was the standard deviation of the risk premium over this period?
d. Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.
9. Calculating Returns and Variability. You've observed the following returns on Hacker Corporation's stock over the past live years: —25 percent. 36 percent.
9 percent. 11 percent, and 17 percent.
a. What was the arithmetic average return on the stock over this five-year period?
b. What was the variance of the returns over this period? The standard deviation?
10. Calculating Real Returns and Risk Premiums. For Problem 9, suppose the average inflation rate over this period was 4.2 percent and ¡he average T-bill rate over the period was 5.1 percent.
a. What was the average real return on the stock?
b. What was the average nominal risk premium on the stock?
11. Calculating Real Rates. Given the information in Problem !(). what was the average real risk-free rate over this time period'? What was the average real risk premium?
12. Effects of Inflation. Look at Table 10.1 and Figure 10.7 in the text. When were T-bifl rates at their highest over the period from 1926 through 2006? Why do you think they were so high during this period? What relationship underlies your answer?
13. Calculating Returns. You purchased a zero-coupon bond one year ago for
$l 62.87. The market, interest rate is now 9 percent. If the bond had 20 years to maturity when you originally purchased it. what was your total return for the past year?
14. Calculating Returns. You bought a share of 6 percent preferred stock for $95.12 last year. The market price for your stock is now $93.80. What is your total return for last year?
15. Calculating Returns. You bought a stock three months ago for $41.05 per share. The stock paid no dividends. The current share price is $46.81. What is the APR of your investment? The EAR?
16. Calculating Real Returns. Refer to Table 10.1. What was the average real return for Treasury bills from 1926 through ! 932?
17. Return Distributions. Refer back to Figure 10.10. What range of returns would you expect to see 68 percent of the time for long-term corporate bonds? What about 95 percent of the time?
18. Return Distributions. Refer back to Figure 10.10. What range of returns would you expect to see 68 percent of the time for large-company stocks? What about
95 percent of the time?
19. Calculating Returns and Variability. You find a certain stock that had returns of 13 percent, -18 percent. 9 percent, and 36 percent for four of the last live years. If the average return of the stock over this period was 11 percent, what was the stock's return for the missing year? What is the standard deviation of the stock's returns?
20. Arithmetic and Geometric Returns. A stock has had returns of 36 percent, 19 percent, 27 percent, -7 percent, 6 percent, and 13 percent over the last six years. What are the arithmetic and geometric returns for the stock?
21. Arithmetic and Geometric Returns. A stock has had the following year-end prices and dividends:
Year |
Price |
Dividend |
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