Questions and Problems

Basic

(Questions 1-12)

1. Calculating Returns Suppose a stock had an initial price of $62 per share, paid a dividend of $1.50 per share during the year, and had an ending share price of $51. Compute the percentage total return.

2. Calculating Yields In Problem 1, what was the dividend yield? The capital gains yield?

3. Return Calculations Rework Problems 1 and 2 assuming the ending share price is $81.

4. Calculating Returns Suppose you bought a 10 percent coupon bond one year ago for $1,080. The bond sells for $1,100 today.

a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?

b. What was your total nominal rate of return on this investment over the past year?

c. If the inflation rate last year was 4 percent, what was your total real rate of return on this investment?

5. Nominal versus Real Returns What was the average annual return on large-company stock from 1926 through 2000:

a. In nominal terms?

b. In real terms?

6. Bond Returns What is the historical real return on long-term government bonds? On long-term corporate bonds?

7. Calculating Returns and Variability Using the following returns, calculate the average returns, the variances, and the standard deviations for X and Y.

Year

Returns

0 -1

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