SCHOOL OF BUSINESS ADMINISTRATION Corporate Financial Management FINC 401 Answer the following questions 1. Consider the following information: Rate of Return if State Occurs Probability of State of Economy State of Economy Stock A Stock B Recession .21 .06 -.21 Normal .58 .09 .08 Boom .21 .14 .25 a. Calculate the expected return for Stocks A and B. b. Calculate the standard deviation for Stocks A and B. 2. Suppose a stock had an initial price of $74 per share, paid a dividend of $1.65 per share during the year, and had an ending share price of $61. a. Compute the percentage total return. b. What was the dividend yield and the capital gains yield? 3. Suppose you bought a bond with an annual coupon of 6% one year ago for $1,010. The bond sells for $1,025 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? b. What was your total nominal rate of return on this investment over the past year? 4. Consider the following information: Returns Year Y 1 13% 27% 2 26 36 3 7 11 4 -5 -29 11 16 Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y 5. What are the arithmetic and geometric average returns for a stock with annual returns of 6%, 9%, –3%, and 17%? FINC401 Team Page 1 of 2 SCHOOL OF BUSINESS ADMINISTRATION Corporate Financial Management FINC 401 6. Three months ago, you purchased a stock for $69.02. The stock is currently priced at $74.80. What is the EAR on your investment? 7. You own 480 shares of XYZ Co. stock that sells for $59.92 per share. If the stock has a dividend yield of 3.2%, how much do you expect to receive next year in dividend income from this investment? 8. Salah bought a stock for $50 per share and sold it for $65 after 18 months as well as he received $4.5 as cash divided during the period and he paid $1 as transactions costs. Samir bought a bond for 9 months; his holding period return was 18%. Which investor makes higher rate of return? 9. You were an investor advisor. After analyzing the available stocks for your client, you filter these stocks to four stocks as follow: Stock L Q 15% E(R) SD 18% 36.6% 20% 4.2% 6.3% 12.2% 5.8% Which two stocks of you will advise your client to buy? Why?