Evaluating Risk and Return-995709
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Evaluating Risk and Return
Bartman Industries
Reynolds Inc.
Winslow 5000
Year
Stock Price
Dividend
Stock Price
Dividend
Includes Dividends
2020
$17.35
$1.16
$49.25
$2.80
$11,006.20
2019
$14.70
$1.07
$53.20
$2.70
$8,463.89
2018
$16.50
$1.00
$49.25
$2.55
$8,354.95
2017
$10.75
$0.95
$58.25
$2.40
$6,268.43
2016
$11.52
$0.90
$61.80
$2.25
$5,533.19
2015
$7.62
$0.85
$57.05
$2.10
$4,625.87
a.
Calculating the annual rates of return for Bartman, Reynolds, and the Winslow 5000 Index
Year
Bartman
Reynolds
Winslow
2020
25.92%
-2.16%
30.04%
2019
-4.42%
13.50%
1.30%
2018
62.79%
-11.07%
33.29%
2017
1.56%
-1.86%
13.29%
2016
62.99%
12.27%
19.61%
Calculating each entity's average return over the 5-year period
Bartman
Reynolds
Winslow
Average return
29.77%
2.14%
19.51%
b.
Calculating the standard deviations of the returns for Bartman, Reynolds, and the Wiinslow 5000
Bartman
Reynolds
Winslow
Standard deviation
32.30%
10.50%
12.95%
c.
Calculating the coefficients of variation for Bartman, Reynolds, and the Wiinslow 5000
Bartman
Reynolds
Winslow
Coefficient of variation
1.09
4.92
0.66
d.
Calculating the Sharpe ratios for Bartman, Reynolds, and the Index using their average returns
Risk-free rate
3.00%
Bartman
Reynolds
Winslow
Sharpe ratio
0.8287
-0.0824
1.2746
e.
Constructing a scatter diagram that shows Bartman's and Reynolds's returns on the vertical axis and
the Winslow 5000 Index's returns on the horizontal axis
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f.
Estimating Bartman's and Reynolds's betas by running regressions of their returns against the index's returns
A
B
C
D
E
F
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Bartman's Calculations
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.726648591936013
R Square
0.52801817616259
Adjusted R Square
0.37069090155012
Standard Error
0.256252960289425
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
0.220385306315156
0.220385306315156
3.35617697225868
0.164343991837771
Residual
3
0.196996738971281
0.065665579657094
Total
4
0.417382045286437
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Intercept
-0.055879735399344
0.224452619983748
-0.248960049579238
0.819462935207227
-0.770188146577873
X Variable 1
1.81258110069832
0.989407095995772
1.8319871648728
0.164343991837771
-1.3361538563749
Reynolds's Calculations
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.750723356747679
R Square
0.563585558366504
Adjusted R Square
0.418114077822005
Standard Error
0.080078820732396
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
0.024843760561501
0.024843760561501
3.87419964557318
0.143684802318065
Residual
3
0.019237852589674
0.006412617529891
Total
4
0.044081613151175
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Intercept
0.140061713546818
0.070141242849622
1.99685246306656
0.1397517121969
-0.08315902560797
X Variable 1
-0.608575965987938
0.309188831934347
-1.96829866777712
0.143684802318065
-1.59255282181239
Formulas
Bartman's beta
1.8126 =B81
Reynolds's beta
-0.6086 =B104
g.
Calculating the two companies' required returns
Market return
9.00%
Risk-free rate
4.50%
Bartman's required return
12.66% =B114+B109*(B113-B114)
Reynolds's required return
1.76% =B114+B110*(B113-B114)
h.
Calculating the portfolio's beta and required return
Bartman's weght
50%
Reynolds's weght
50%
Portfolio's beta
0.6020 =(B109+B110)/2
A
B
C
D
E
F
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Portfolio's required return
7.21% =(B115+B116)/2
i.
Calculating the new portfolio's required return
Beta
Portfolio Weight
Bartman
1.813
30%
Stock A
0.730
15%
Stock B
0.981
30%
Stock C
1.435
25%
Portfolio's beta
1.3063 =(B126*C126)+(B127*C127)+(B128*C128)+(
Portfolio's required return
10.38% =B114+B131*(B113-B114)
A
B
C
D
E
F
122
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124
125
126
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128
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130
131
132
Formulas
Bartman
Reynolds
=((B5+C5-B6)/B6)
=((D5+E5-D6)/D6)
=((B6+C6-B7)/B7)
=((D6+E6-D7)/D7)
=((B7+C7-B8)/B8)
=((D7+E7-D8)/D8)
=((B8+C8-B9)/B9)
=((D8+E8-D9)/D9)
=((B9+C9-B10)/B10)
=((D9+E9-D10)/D10)
Bartman
Reynolds
=SUM(B14:B18)/5
=SUM(C14:C18)/5
Bartman
Reynolds
=STDEV.S(B14,B15,B16
=STDEV.S(C14,C15,C16
Bartman
Reynolds
=B26/B22
=C26/C22
Bartman
Reynolds
=((B22-B33)/B26)
=((C22-B33)/C26)
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Upper 95%
Lower 95.0%
Upper 95.0%
0.658428675779185
-0.770188146577873
0.658428675779185
4.96131605777155
-1.3361538563749
4.96131605777155
Upper 95%
Lower 95.0%
Upper 95.0%
0.363282452701606
-0.08315902560797
0.363282452701606
0.37540088983651
-1.59255282181239
0.37540088983651
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Related Questions
Year
2021
2020
2019
2018
2017
2016
Goodman Corporation
Stock Price
$26.22
22.17
24.95
16.25
17.12
11.41
Dividend
$1.69
1.52
1.45
1.40
1.34
1.26
Landry Incorporated
Stock Price
$74.73
80.04
74.73
86.98
91.48
84.61
Dividend
$4.51
4.34
4.16
3.74
3.40
3.00
Market Index
Includes Dividends
17,435.13
13,147.79
12,949.11
9,485.43
8,064.16
6,891.67
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Beginning-of-Year Dividend Paid at
Price
$ 125
141
Year
2018
2019
2020
2021
120
125
Year-End
$2
An investor buys six shares of XYZ at the beginning of 2018, buys another three shares at the beginning of 2019, sells one share
at the beginning of 2020, and sells all eight remaining shares at the beginning of 2021.
Arithmetic time-weighted average returns
Geometric time-weighted average returns
Date
01/01/2018
01/01/2019
64012320
2
Required:
a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
2
2
Cash Flow
b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1,
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%
%
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CASE3: Data as given are shown below:
Year
Bartman
Reynolds
Market Index
Stock Price
Dividend
Stock Price
Dividend
2020
$17.250
$1.150
$48.750
$3.000
11,663.98
2019
14.750
1.06
52.300
2.90
8,785.70
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16.500
1.000
48.750
2.750
8,679.98
2017
10.750
0.950
57.250
2.500
6,434.03
2016
11.375
0.900
60.000
2.250
5,602.28
2015
7.625
0.850
55.750
2.000
4,705.97
Use the data given to calculate annual returns for Bartman and Reynolds, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in…
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XYZ's stock price and dividend history are as follows:
Year
2018
2019
2020
2021
Beginning-of-Year
Price
$ 132
158
119
132
Dividend Paid at
An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at
the beginning of 2020, and sells all four remaining shares at the beginning of 2021.
Arithmetic average rate of return
Geometric average rate of return
Year-End
$
4
4
4
4
a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Round your year-by-year rates of
return and final answers to 2 decimal places. Do not round other calculations.)
Dollar-weighted rate of return
%
0.13 %
b. What is the dollar-weighted rate of return? (Hint. Carefully prepare a chart of cash flows for the four dates corresponding to the turns
of the year for January 1, 2018, to January 1, 2021. If your calculator cannot calculate internal rate of return, you will have to use trial
and error.) (Round your…
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$ 3
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113
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3
2021
105
3
An investor buys four shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all five remaining shares at the beginning of 2021.
Required:
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319000
Net income
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XYZ stock price and dividend history are as follows:
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Dividend Paid at
Year-End
Price
$100
110
$ 4
4
90
95
Year
2018
2019
2020
2021
An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at
the beginning of 2020, and sells all four remaining shares at the beginning of 2021.
Required:
a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Arithmetic time-weighted average returns
Geometric time-weighted average returns
2018
2019
2020
2021
b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021.
(Negative amounts should be indicated by a minus sign.)
Date
4
4
Cash Flow
$
Rate of return
(300)
(208)
110
396
3.15 %
2.33 %
b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot…
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XYZ stock price and dividend history are as follows:
Dividend Paid at
Year-End
5.5
Year
2010
2019
2020
2021
Beginning-of-
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An investor buys six shares of XYZ at the beginning of 2018, buys another three shares at the beginning of 2019, sells one share at the
beginning of 2020, and sells all eight remaining shares at the beginning of 2021.
$130
144
120
125
Required:
a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate
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Arithmetic Sime-weighted average retums
Geometric time-weighted average returns
Date
01/01/2018
01/01/2019
01/01/2020
01/01/2021
b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021.
(Negative amounts should be indicated by a minus sign.)
Fale of retur
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%
Cash Flow
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Beginning-of-Year Dividend paid at
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$ 102
122
92
102
Year
2018
2019
2020
2021
Year-End
$4
Arithmetic average rate of return
Geometric average rate of return
4
An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at
the beginning of 2020, and sells all four remaining shares at the beginning of 2021.
4
4
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Dollar-weighted rate of return
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- XYZ's stock price and dividend history are as follows: Year 2018 2019 2020 2021 Beginning-of-Year Price $ 132 158 119 132 Dividend Paid at An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all four remaining shares at the beginning of 2021. Arithmetic average rate of return Geometric average rate of return Year-End $ 4 4 4 4 a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Round your year-by-year rates of return and final answers to 2 decimal places. Do not round other calculations.) Dollar-weighted rate of return % 0.13 % b. What is the dollar-weighted rate of return? (Hint. Carefully prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. If your calculator cannot calculate internal rate of return, you will have to use trial and error.) (Round your…arrow_forwardXYZ stock price and dividend history are as follows: Year Beginning-of-Year Price Dividend Paid at Year-End 2018 $ 110 $ 3 2019 113 3 2020 100 3 2021 105 3 An investor buys four shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all five remaining shares at the beginning of 2021. Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. (Negative amounts should be indicated by a minus sign.) b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot calculate internal rate of return, you will have to use a spreadsheet or trial and error.) (Negative value should be indicated by a minus…arrow_forwardFaux Corp Stock Over the Last 10 years - Beta = 1.1 - Market Risk premium = 10% - Current risk-free rate 3% - Last dividend $5 - Current Stock Price $30 Dividend History 2016 - $4.20 2017 - $4.40 2018 - $4.55 2019 - $4.75 2020 - $5.00 1. Calculate the cost of equity using SMLarrow_forward
- A stock ended 2019 at $28.80 per share and paid a $1.75 dividend per share in 2021. What is the holding period return if the stock ended 2021 at $38.80? 40.80% 34.72% -28.65% -30.28%arrow_forwardThe following amounts were taken from the financial statements of Sheffield Company: 2020 2019 Total assets $910000 $1040000 Net sales 880000 690000 Gross profit 351000 319000 Net income 161040 125000 Weighted average number of common shares outstanding 80000 80000 Market price of common stock $30 $41 The profit margin for 2020 is 39.9%. 9.1%. 17.7%. 18.3%.arrow_forwardes XYZ stock price and dividend history are as follows: Beginning-of-Year Dividend Paid at Year-End Price $100 110 $ 4 4 90 95 Year 2018 2019 2020 2021 An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all four remaining shares at the beginning of 2021. Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic time-weighted average returns Geometric time-weighted average returns 2018 2019 2020 2021 b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. (Negative amounts should be indicated by a minus sign.) Date 4 4 Cash Flow $ Rate of return (300) (208) 110 396 3.15 % 2.33 % b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot…arrow_forward
- XYZ stock price and dividend history are as follows: Dividend Paid at Year-End 5.5 Year 2010 2019 2020 2021 Beginning-of- Year Price An investor buys six shares of XYZ at the beginning of 2018, buys another three shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all eight remaining shares at the beginning of 2021. $130 144 120 125 Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic Sime-weighted average retums Geometric time-weighted average returns Date 01/01/2018 01/01/2019 01/01/2020 01/01/2021 b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. (Negative amounts should be indicated by a minus sign.) Fale of retur % % Cash Flow b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot calculate…arrow_forwardManshukharrow_forwardXYZ's stock price and dividend history are as follows: Beginning-of-Year Dividend paid at Price $ 102 122 92 102 Year 2018 2019 2020 2021 Year-End $4 Arithmetic average rate of return Geometric average rate of return 4 An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all four remaining shares at the beginning of 2021. 4 4 a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Round your year-by-year rates of return and final answers to 2 decimal places. Do not round other calculations.) Dollar-weighted rate of return b. What is the dollar-weighted rate of return? (Hint: Carefully prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. If your calculator cannot calculate internal rate of return, you will have to use trial i and error.) (Round your answer to 4…arrow_forward
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