Risk return exercise : D2L Assessment #7 DePaul, Inc. You are searching for a stock to add to your current stock portfolio. You are interested in DePaul, Inc. You realize that any time you consider a technology stock, it involves elevated risk. The rule you follow is to include only stocks with a coefficient of variation of returns below 1.02. You have obtained the following price information and dividend information: Year Starting Price Ending price Quarterly Dividend 1. $40.00 $42.00 $0.50 2 $42.00 $47.40 $47.40 $0.75 $43.40 $1.00 4 $43.40 $53.40 $1.25 Calculate the annual rate of return for each year, 1 through 4, for DePaul stock b. Assume that each year's return is equally probable and calculate the average return over this time period. Calculate the standard deviation of returns over the 4 years. d. Based on b and c determine the coefficient of variation of returns for the security. Does an investment in this stock fall within the parameters of your investment policy? a. C. е.
Risk return exercise : D2L Assessment #7 DePaul, Inc. You are searching for a stock to add to your current stock portfolio. You are interested in DePaul, Inc. You realize that any time you consider a technology stock, it involves elevated risk. The rule you follow is to include only stocks with a coefficient of variation of returns below 1.02. You have obtained the following price information and dividend information: Year Starting Price Ending price Quarterly Dividend 1. $40.00 $42.00 $0.50 2 $42.00 $47.40 $47.40 $0.75 $43.40 $1.00 4 $43.40 $53.40 $1.25 Calculate the annual rate of return for each year, 1 through 4, for DePaul stock b. Assume that each year's return is equally probable and calculate the average return over this time period. Calculate the standard deviation of returns over the 4 years. d. Based on b and c determine the coefficient of variation of returns for the security. Does an investment in this stock fall within the parameters of your investment policy? a. C. е.
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
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:For DePaul inc, what is the average return for the four years (we view this as our
expected return for next year). Round to no decimal points and use the % symbol.
(17%...not 17.4% or 17.32%)
Transcribed Image Text:Risk return exercise : D2L Assessment #7
DePaul, Inc.
You are searching for a stock to add to your current stock portfolio. You are interested in DePaul, Inc. You realize
that any time you consider a technology stock, it involves elevated risk. The rule you follow is to include only
stocks with a coefficient of variation of returns below 1.02. You have obtained the following price information and
dividend information:
Year
Starting Price
$40.00
Ending price
Quarterly Dividend
1
$42.00
$0.50
$42.00
$47.40
$0.75
3
$47.40
$43.40
$1.00
4
$43.40
$53.40
$1.25
a.
Calculate the annual rate of return for each year, 1 through 4, for DePaul stock
b.
Assume that each year's return is equally probable and calculate the average return over this time period.
Calculate the standard deviation of returns over the 4 years.
Based on b and c determine the coefficient of variation of returns for the security.
Does an investment in this stock fall within the parameters of your investment policy?
С.
d.
e.
Expert Solution
Step 1
Given:
| Year | Starting price | Ending price |
| 1 | $40 | $42 |
| 2 | $42 | $47 |
| 3 | $47 | $43 |
| 4 | $43 | $53 |
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