10 terms

Chapter 1:Connect

STUDY
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Terms in this set (...)

The rate of return on a U.S. Treasury Bill is frequently used as a proxy for the:
Risk-free rate
If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's:
Market Capitalization
You purchased a stock for $29.40 a share, received a dividend of $0.72 per share, and sold the stock after one year for $31.30 a share. What was your dividend yield on this investment?
2.45 percent

Dividend
-------------
Purchase Price

0.72
-------- = 2.45
29.40
RedStone Mines stock returned 7.5, 15.3, -9.2, and 11.5 percent over the past four years, respectively. What is the geometric average return?
5.84 percent

[(1+return)(1+return)...^1/years - 1

[(1+.075)(1+.153)(1-.092)(1+.115)]^1/4 - 1 = 5.84
Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total dollar return?
$2,712

Purchased share (resold price - original price + dividend per share)

600 (71.30 - 68.20 + 1.42) = 2,712
Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when computing the annualized return on this investment?
3.00

300
------
100
Christine owns a stock that dropped in price from $38.70 to $34.10 over the past year. The dividend yield on that stock is 1.4 percent. What is her total return on this investment for the year?
-10.49 percent

(last price - original price)
------------------------------------ + yield percent
original price

(34.10 - 38.70)
------------------- + 0.14 = -10.49
38.70
One year ago, you purchased 300 shares of Southern Cotton at $32.60 a share. During the past year, you received a total of $280 in dividends. Today, you sold your shares for $35.80 a share.
What is your total return on this investment?
12.68 percent

Selling price - Purchase price + (total dividends/total shares)
-----------------------------------------------------------------------------
purchasing price

(35.80 - 32.60) + 280
------- = 12.68
300
------------------------------
32.60
Over the past four years, Jellystone Quarry stock produced returns of 12.5, 15.1, 8.7, and 2.6 percent, respectively. For the same time period, the risk-free rate 4.7, 5.3, 3.9, and 3.4 percent, respectively. What is the arithmetic average risk premium on this stock during these four years?
5.40 percent

( return 1 -risk-free rate) + ........(return 4 - risk-free rate)
------------------------------------------------------------------------------
number of years

(.125 - 0.47) + (.151 - .053) + (.087 - .039) + (.026 - .034)
------------------------------------------------------------------------------
4
One year ago, you purchased 400 shares of stock at a cost of $8,650. The stock paid an annual dividend of $1.10 per share. Today, you sold those shares for $23.90 each. What is the capital gains yield on this investment?
10.52 percent

(sold price x total shares) - cost of purchase
----------------------------------------------------------------
cost of purchase

(23.90 x 400) - 8,650
----------------------------- = 10.52
8,650