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##### 1. You purchased 1,000 shares of stock for $33 pe...

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**Question**

1. You purchased 1,000 shares of stock for $33 per share exactly one year ago. During the year, the stock paid a $.50 dividend per share and the current stock price is $27 per share. The inflation rate the last year was 2%. Answer the following (showing all work): (a) Calculate the actual return (also called percentage return) on your investment over the last year. (b) Calculate (i) the dividend yield and (ii) the percentage capital gain. (c) Calculate the real rate of return on the stock. 2. You are interested in buying a stock that has a price of $62. You have projected that next year there is: a 10% probability the stock will equal $10, a 20% probability the stock will equal $58, a 30% probability the stock will equal $63, a 30% probability the stock will equal $80, and a 10% probability the stock will equal $120. Answer the following (showing all work): (a) what is the expected return on the stock if you buy today and sell next year? (b) what is the expected standard deviation of the stock? 3. Find two publicly traded stocks in different industries and look up estimates of their ?. (a) Using Rf=1%, E(Rm) = 8%, calculate the E(r) for each stock. (b) Explain in words a non-finance student could understand why the one stock has a higher expected return than the other.

Paper#6861 | Written in 18-Jul-2015

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