Assume the returns of a stock for the previous five years are as follows: 8%, 12%, - 4%, 9% and 14%. a. What is the arithmetic average? What is the geometric average? b. What is the historical standard deviation of the returns of this stock? c. Another stock in the same industry has had the following year end prices and dividends: Year Price $60.18 73.66 94.18 89.35 78.49 95 05 Dividend $.60 .64 .72 .80 1 20 3 5

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
Assume the returns of a stock for the previous five years are as follows: 8%, 12%, -
4%, 9% and 14%.
a. What is the arithmetic average? What is the geometric average?
b. What is the historical standard deviation of the returns of this stock?
c. Another stock in the same industry has had the following year end prices and
dividends:
Year Price
$60.18
73.66
94.18
89.35
78.49
95.05
Dividend
1
$.60
.64
.72
.80
1.20
4
What are the arithmetic and geometric returns for the stock?
d. You buy a stock for $62.50 per share and hold it for one year. During the year, the
stock paid a dividend of $1.50 and the year-end stock price was $71.25. What was your
holding period return on the stock? Also, divide the return of the stock into its two
components: the dividend yield and the capital gains component.
e. Explain the three forms of market efficiency and its significance as it relates to
trading strategies.
T23t56
Transcribed Image Text:Assume the returns of a stock for the previous five years are as follows: 8%, 12%, - 4%, 9% and 14%. a. What is the arithmetic average? What is the geometric average? b. What is the historical standard deviation of the returns of this stock? c. Another stock in the same industry has had the following year end prices and dividends: Year Price $60.18 73.66 94.18 89.35 78.49 95.05 Dividend 1 $.60 .64 .72 .80 1.20 4 What are the arithmetic and geometric returns for the stock? d. You buy a stock for $62.50 per share and hold it for one year. During the year, the stock paid a dividend of $1.50 and the year-end stock price was $71.25. What was your holding period return on the stock? Also, divide the return of the stock into its two components: the dividend yield and the capital gains component. e. Explain the three forms of market efficiency and its significance as it relates to trading strategies. T23t56
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 3 images

Blurred answer
Knowledge Booster
Risk and Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education