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Principles of Finance 2e

Problems

Principles of Finance 2eProblems

Problems

1 .
You purchase 100 shares of COST (Costco) for $280 per share. Three months later, you sell the stock for $290 per share. You receive a dividend of $0.57 a share. What is your total dollar return?
2 .
You purchase 100 shares of COST for $280 per share. Three months later, you sell the stock for $290 per share. You receive a dividend of $0.57 a share. What are your dividend yield, capital gain yield, and total percentage return?
3 .
You purchase 100 shares of COST for $280 per share. Three months later, you sell the stock for $290 per share. You receive a dividend of $0.57 a share. What is the EAR of your investment?
4 .
You invest in a stock for four years. The returns for the four years are 20%, -10%, 15%, and -5%. Calculate the arithmetic average return and the geometric average return.
5 .
You are considering purchasing shares in a company that has a beta of 0.9. The average return for the S&P 500 is 11%, and the average return for US Treasury bills has been 2%. Based on the CAPM, what is your expected return for the stock?
6 .
Your portfolio has had a 15% rate of return with a standard deviation of 18% and a beta of 1.1. The average return for the S&P 500 has been 11%, and the average return for US Treasury bills has been 2%. Calculate the Sharpe ratio, Treynor ratio, and Jensen’s alpha for your portfolio.
7 .
The monthly returns for Visa (V) and Pfizer (PFE) for 2018–2020 are provided in the chart below. In addition, the monthly return for the SPDR S&P 500 ETF Trust (SPY) is provided; SPY is often used as a proxy for the returns of the S&P 500, or a broad market index. Using Excel, calculate the arithmetic average monthly returns for V, PFE, and SPY. Also, calculate the standard deviation of returns for each of V, PFE, and SPY.

Monthly Returns for SPY, V, and PFE for 2018–2020

Date SPY V PFE
Jan-18 0.0618 0.0895 0.0226
Feb-18 -0.0364 -0.0104 -0.0197
Mar-18 -0.0313 -0.0253 -0.0135
Apr-18 0.0092 0.0607 0.0316
May-18 0.0243 0.0303 -0.0186
Jun-18 0.0013 0.0149 0.0196
Jul-18 0.0417 0.0324 0.1006
Aug-18 0.0319 0.0742 0.0398
Sep-18 0.0014 0.0233 0.0705
Oct-18 -0.0649 -0.0816 -0.0229
Nov-18 0.0185 0.0280 0.0736
Dec-18 -0.0933 -0.0673 -0.0485
Jan-19 0.0864 0.0233 -0.0275
Feb-19 0.0324 0.0971 0.0301
Mar-19 0.0136 0.0563 -0.0203
Apr-19 0.0454 0.0528 -0.0438
May-19 -0.0638 -0.0189 0.0224
Jun-19 0.0644 0.0774 0.0526
Jul-19 0.0201 0.0256 -0.1034
Aug-19 -0.0167 0.0158 -0.0847
Sep-19 0.0148 -0.0473 0.0201
Oct-19 0.0268 0.0398 0.0679
Nov-19 0.0362 0.0316 0.0039
Dec-19 0.0240 0.0201 0.0270
Jan-20 0.0045 0.0589 -0.0495
Feb-20 -0.0792 -0.0865 -0.0934
Mar-20 -0.1300 -0.1123 -0.0233
Apr-20 0.1336 0.1092 0.1752
May-20 0.0476 0.0924 -0.0044
Jun-20 0.0133 -0.0089 -0.1352
Jul-20 0.0636 -0.0143 0.1768
Aug-20 0.0698 0.1134 -0.0083
Sep-20 -0.0413 -0.0553 -0.0288
Oct-20 -0.0210 -0.0913 -0.0332
Nov-20 0.1088 0.1576 0.1381
Dec-20 0.0326 0.0414 -0.0293
Table 15.8
8 .
Using the monthly returns provided in the table in problem 7, use Excel to calculate the beta for V and the beta for PFE. Which of these stocks has more systematic risk? What would you expect for the comparative returns of V and PFE?
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