Q1) Suppose a stock had an initial price of $91 per share, paid a dividend of $2.40 per share during the year, and had an
ending share price of $102. Compute the percentage total return.
Answer
Return (R) =
Q2) Suppo
...
Q1) Suppose a stock had an initial price of $91 per share, paid a dividend of $2.40 per share during the year, and had an
ending share price of $102. Compute the percentage total return.
Answer
Return (R) =
Q2) Suppose a stock had an initial price of $91 per share, paid a dividend of $2.40 per share during the year, and had an
ending share price of $102. What was the dividend yield? The capital gains yield?
Answer:
Dividend yield =
And the capital gains yield is the increase in price divided by the initial price, so:
Capital gains yield =
Q3) Rework Problems 1 and 2 assuming the ending share price is $83.
Answer: Return (R) =
And the dividend yield and capital gains yield are:
Dividend yield = Dividends / Beginning price = $2.40 / $91 = .02637 or 2.637%
Capital gains yield = (Ending price – Beginning price) / Beginning price
= ($83 – 91) / $91 = -.08791 or -8.791%
Here’s a question for you: Can the dividend yield ever be negative?
Q4) Suppose you bought a 7% coupon bond one year ago for $1,040. The bond sells for $1,070 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?
Answer: The total dollar re
Total dollar return = Total percentage return = [(Ending price – Beginning price) + Coupon payment] / Beginning price
– 1 = .0539 or 5.4%
Q5) What was the average annual return on Canadian stock from 1957 through 2011:
a. In nominal terms?
b. In real terms?
Use Table 12.4 to answer the questions.
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