HW#7
FIN 365 Advanced Financial Management
Spring/2019
Name _______________
1. You bought 100 shares of IBM at $90/share one year ago. The stock price is now $100,
and you also receive a cash dividend of $2/share. How much is the rate of return?
Answer:
Rate of return= (End price-beginning price+ dividends)/beginning price
= (100-90+2)/90
= 13.33%.
2. Based on a study of U.S. capital markets for the 1900-2000 period, the geometric average
returns on U.S. Treasury bills, government bonds, and common stocks are 4.0%, 5.2%,
and 11.7%, respectively. Suppose $1,000 was invested at the beginning of 1900 in the
each of the three securities. Please calculate the value of each investment by the end of
2000. [Note: There are 101 years during the 1900-2000 period.]
Answer: The value of each investment by the end of 2000:
a) US Treasury bills = 1000*1.04^101 = $52,525.15
b) Government bonds = 1000*1.052^101 = $167,336.1
c) Common stock = 1000*1.117^101 = $71,346,140.49
3. We have the following information for the XYZ stock:
Year Annual Return
2014 10%
2015 -15%
2016 15%
2017 20%
(1) Calculate the arithmetic average annual return.
(2) Calculate the geometric average annual return.
(3) Calculate the standard deviation of the returns.
(4) If $1000 is invested in the stock at the start of 2014, how much will it become by year-
end 2017?
