Finance Mba

1472 words 6 pages
1. Calculating Returns
Suppose a stock had an initial price of $84 per share, paid a dividend of $1.40 per share during the year, and had an ending share price of $96. Compute the percentage total return.

The percentage total return is (96-84+1,40)/84=0,1595=15,95%

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

Capital gain yield: (96-84)/84=0,1429=14,29%
Dividend yield: 1,40/84=0,167=1,67%

3. Calculating Returns and Variability
You’ve observed the following returns on Yasmin Corporation’s stock over the past five years: 19 percent, -13 percent, 24 percent, 31 percent, and 8 percent. a. What was the arithmetic average return on Yasmin’s stock over this five-year period? b.
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7. Calculating Returns and Standard Deviations
Based on the following information, calculate the expected return and standard deviation for the two stocks.

State of Economy
Probability of state of economy
Rate of Return if State Occurs
Stock A
Stock B
Recession
.15
.03
-.20
Normal
.50
.07
.13
Boom
.35
.11
.33

Expected return of Stock A
(0.15 x 0.03) + (0.50 x 0.07) + (0.35 x 0.11) = 0.0045 + 0.035 + 0.0385= 0.078 which is 7.8%

Expected return of Stock B
(0.15 x -0.20) + (0.50 x 0.13) + (0.35 x 0.33) = -0.03 + 0.065 + 0.1155= 0.1505 which is 15.05%

8. Systematic versus Unsystematic Risk
Classify the following events as mostly systematic or mostly unsystematic. Is the distinction clear in every case? Provide a rationale for each response.

a. Short-term interest rates increase unexpectedly. This is a systematic risk since all rates will increase and will affect every companies. b. The interest rate a company pays on its short-term debt borrowing is increased by its bank. This is an unsystematic risk since only the company is affected. c. Oil prices unexpectedly decline. In this case, the classification can be seen as ambiguous since the oil prices will touch in the first time oil companies, but the risk will mostly be systematic since transport costs will change. d. An oil tanker ruptures, creating a large oil spill. The risk here is unsystematic since the company having the tanker will be

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