Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 12, Problem 3QP
Summary Introduction
To determine: The total percentage return, the dividend yield and the
Introduction:
Total return refers to the total income from an investment. The total income includes the periodic incomes and the increase or decrease in the value of an asset.
Percentage return refers to the returns stated as a percentage. Percentage returns determine the returns per one dollar of investment or per $100 worth of investment.
Dividend yield refers to the percentage of the initial price of the share received as a dividend.
Capital yield refers to the change in the value of investment stated in terms of percentage.
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Problem 13-5 Calculating Expected Return [LO1]
Consider the following information:
State of Economy
Recession
Boom
Economy
Probability of
Portfolio
State of
Return if State
Occurs
-20
28
35
.65
Calculate the expected return. (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expected return
%
Chapter 12 Solutions
Fundamentals of Corporate Finance
Ch. 12.1 - Prob. 12.1ACQCh. 12.1 - Why are unrealized capital gains or losses...Ch. 12.1 - What is the difference between a dollar return and...Ch. 12.2 - Prob. 12.2ACQCh. 12.2 - Why doesnt everyone just buy small stocks as...Ch. 12.2 - What was the smallest return observed over the 88...Ch. 12.2 - About how many times did large-company stocks...Ch. 12.2 - What was the longest winning streak (years without...Ch. 12.2 - How often did the T-bill portfolio have a negative...Ch. 12.3 - Prob. 12.3ACQ
Ch. 12.3 - What was the real (as opposed to nominal) risk...Ch. 12.3 - Prob. 12.3CCQCh. 12.3 - What is the first lesson from capital market...Ch. 12.4 - In words, how do we calculate a variance? A...Ch. 12.4 - With a normal distribution, what is the...Ch. 12.4 - Prob. 12.4CCQCh. 12.4 - What is the second lesson from capital market...Ch. 12.5 - Prob. 12.5ACQCh. 12.5 - Prob. 12.5BCQCh. 12.6 - What is an efficient market?Ch. 12.6 - Prob. 12.6BCQCh. 12 - Chase Bank pays an annual dividend of 1.05 per...Ch. 12 - The risk premium is computed as the excess return...Ch. 12 - Prob. 12.4CTFCh. 12 - Prob. 12.5CTFCh. 12 - Prob. 12.6CTFCh. 12 - Investment Selection [LO4] Given that Fannie Mae...Ch. 12 - Prob. 2CRCTCh. 12 - Risk and Return [LO2, 3] We have seen that over...Ch. 12 - Market Efficiency Implications [LO4] Explain why a...Ch. 12 - Efficient Markets Hypothesis [LO4] A stock market...Ch. 12 - Semistrong Efficiency [LO4] If a market is...Ch. 12 - Efficient Markets Hypothesis [LO4] What are the...Ch. 12 - Stocks versus Gambling [LO4] Critically evaluate...Ch. 12 - Efficient Markets Hypothesis [LO4] Several...Ch. 12 - Efficient Markets Hypothesis [LO4] For each of the...Ch. 12 - Calculating Returns [LO1] Suppose a stock had an...Ch. 12 - Calculating Yields [LO1] In Problem 1, what was...Ch. 12 - Prob. 3QPCh. 12 - Prob. 4QPCh. 12 - Nominal versus Real Returns [LO2] What was the...Ch. 12 - Bond Returns [LO2] What is the historical real...Ch. 12 - Prob. 7QPCh. 12 - Risk Premiums [LO2, 3] Refer to Table 12.1 in the...Ch. 12 - Calculating Returns and Variability [LO1] Youve...Ch. 12 - Calculating Real Returns and Risk Premiums [LO1]...Ch. 12 - Calculating Real Rates [LO1] Given the information...Ch. 12 - Prob. 12QPCh. 12 - Prob. 13QPCh. 12 - Calculating Returns and Variability [LO1] You find...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Using Return Distributions [LO3] Suppose the...Ch. 12 - Prob. 18QPCh. 12 - Distributions [LO3] In Problem 18, what is the...Ch. 12 - Blumes Formula [LO1] Over a 40-year period an...Ch. 12 - Prob. 21QPCh. 12 - Calculating Returns [LO2, 3] Refer to Table 12.1...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Prob. 1MCh. 12 - Prob. 2MCh. 12 - Prob. 3MCh. 12 - Prob. 4MCh. 12 - A measure of risk-adjusted performance that is...Ch. 12 - Prob. 6M
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- 15 [Question text] Based on the following information, what is the expected return for the following stock? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom 0.06 -6% Normal 0.74 7% Recession 0.20 18% Select one: A. 8.80 percent B. 8.23 percent C. 8.53 percent D. 8.42 percentarrow_forwardP Flag question Dhofar Energy Services has a Beta = 1.97 The risk-free rate on a treasury bill is currently 4.4% and the cost of equity has 20.70%. What is the market return? Select one: Oa 0.1267 Ob. 1.0827 Oc. All the given choices are not correct Od. 0.2497 Oe 0.1476arrow_forwardQuestion 8 What is the value of a call given the Black-Scholes model and the following information? Stock price - $44, Exercise price $40, Time to expiration=.75, Risk-free rate-4.5%, Standard deviation = 25%, N(d1) 759395, and N(d2) - 687172. O $8.81 O $4.86 O $6.84 O $2.03 O $9.27arrow_forward
- QUESTION 2 Exhibit 6.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA) = 25% E(RB) = 15% (σA) = 18% (σB) = 11% WA = 0.75 WB = 0.25 COVA,B = −0.0009 Refer to Exhibit 6.2. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( σ i ), covariance (COVi,j), and asset weight (Wi) are as shown above? a. 18.64% b. 22.5% c. 11% d. 13.65% e. 20.0%arrow_forwardRequired Return Beta Risk-Free Rate Market Return A 12.5% 0.90 8% ? B 9.0% 1.3 ? 8% C 10.0% ? 7.5% 10.5% a. What is the market return? b. What is the Risk-free rate? c. What is the beta?arrow_forwardQUESTION 18 Suppose that the 1-year, 2-year, 3-year, and 4-year spot rates are observed as follows: r1=9.7%, r2=10.2%, r3=10.9%, r4-12.3%, What must be the expected return in year 4 under the liquidity preference theory if the liquidity premium is 0.49%? Oa. 18.63% Ob. 16.61% c. 16.12% Od. 18.14%arrow_forward
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