6.1+Expected+rate+of+return+day+2

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Worksheet: Calculating Expected Rate of Return Multiple Choice Questions 1. What is the formula for calculating holding period rate of return?  a) E= (Price end of period + divdend – Price beginning of period ) / Price beginning of period  b) E =(Price beginning of period + divdend – Price end of period ) / Price end of period  c) E = (Price end of period + divdend – Price beginning of period ) / Price beginning of period *100  d) E = (Price end of period - divdend + Price beginning of period ) / Price beginning of period  e) E = (Price end of period - divdend + Price beginning of period ) / Price beginning of period 2. Which of the following is not considered when calculating the expected rate of return?  a) Dividends  b) Initial investment  c) Probability of Outcome  d) Inflation rate 3. If an investment has a potential return of $500 and an initial investment of $200, what is the expected rate of return?  a) 40%  b) 150%  c) 25%  d) 2.5%  e) 250% 4. Which of the following is a key factor in determining the expected rate of return?  a) Historical performance  b) Investor's age  c) Current stock market trends  d) Government regulations  e) Personal preferences 5. When calculating expected rate of return, which of the following should be considered for risk assessment?  a) Weather conditions  b) Political stability  c) Social media trends  d) Fashion industry  e) International cuisine O - - - - G O O G

Vocabulary Matching Match the following terms with their definitions: 1. Dividends 2. Rate of Return 3. Risk Assessment 4. Capital Gains 5. Initial Investment A. The initial amount of money invested in a project B. The payment received by shareholders from company profits C. The measure of how much an investment has grown or declined D. The process of analyzing potential risks involved in an investment E. Profits that result from the sale of an asset Scenario Based Questions 1. Scenario: You are considering investing in two stocks. Stock A has a potential return of 8% with a moderate level of risk, while Stock B has a potential return of 12% with a higher level of risk. Which stock would you choose and why? 2. Scenario: You have invested in a company that paid a dividend of $2 per share and experienced a capital gain of $5 per share. Calculate the total return on your investment. 3. Scenario: You are analyzing two investment options. Option A promises a fixed return of 6% annually, while Option B offers a variable return based on market performance. Discuss the factors you would consider before making a decision. Riddle Questions 1. I am essential for calculating expected rate of return. What am I? 2. I represent the gain or loss on an investment. What am I? 3. I help investors evaluate the potential risks involved in an investment. What am I? I would choose stock A because it has a moderate level of risk. Personally, I am not willing to risk my money for a 4% higher potential return. I’d rather take the 8% and be content that I’m not at high risk to lose my money. I would most importantly consider market performance and possible hits the industry could take in the future. This would be my risk assessment. If Option B’s market had a diminishing future, I would be sure to pick Option A. While Option A is high risk with low returns, option B has potential for high risk with high returns. The probabilities and rate of returns for each probability of a security. The total return on an investment The expected rate of return can tell investors the possible future values and let them know how risky investments can be.

Critical Thinking Real World Application Questions 1. How would you advise a friend who is new to investing and wants to understand the concept of expected rate of return? 2. Discuss a real-life situation where the expected rate of return played a significant role in an investment decision. 3. In what ways can understanding the expected rate of return impact an individual's financial planning and decision-making? I would tell them that the expected rate of return takes into account many future possibilities, and averages them out to figure out a rough estimate on how much the investment should theoretically get them. Someone is stuck on whether they should invest in Tesla or Google. Based on market trends and political activity, Tesla has a higher possibility than google, but google has lower risk. Using the expected rate of return, they can manage that risk and see whether the risk could be work it at Tesla, or if Google is the right investment I think understanding the expected rate of return allows individual’s to gain an advantage for future financial profits and smart decision making. Through understanding expected rates, an individual can have an advantage of understanding the future market landscape and chose an investment that will be better later than sooner. They can also properly dismay investments that seem good on the outside, but possibly have a downward sloping profit line in the near future.

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ss. Subject :- Accounting

Question 1Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1)a) Plot the Security Market Line b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph

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