Concept explainers
Rate of return The level of the Syldavia market index is 21,000 at the start of the year and 25,500 at the end. The dividend yield on the index is 4.2%.
- a. What is the return on the index over the year?
- b. If the interest rate is 6%, what is the risk premium over the year?
- c. If the inflation rate is 8%, what is the real return on the index over the year?
a.
To compute: The return on the index over the year.
Explanation of Solution
The return on index over the year can be calculated using the following formula:
b.
To compute: Risk premium over the year when the interest rate is 6%.
Explanation of Solution
Risk premium over the year can be calculated using the following formula:
c.
To compute: The real return on the index over the year when the inflation rate is 8%.
Explanation of Solution
The real return on index over the year can be calculated using the following formula:
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