**Problem #1**

**Calculating Returns. **Suppose a stock had an initial price of $83 per share, paid a dividend of $1.40 per share during the year, and had an ending share price of $71. Compute the percentage total return.

**What was the dividend yield? **

**The capital gains yield?**

** **

**Problem #2**

**Calculating Returns. **Suppose you bought a 7 percent coupon bond one year ago for $893. The bond sells for $918 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?**

c. If the inflation rate last year was 4 percent, **what was your total real rate of return on this investment? **

** **

** **

** **

** **

**Problem #3**

**Portfolio Expected Return. **You own a portfolio that has $1,500 invested in Stock A and $2,600 invested in Stock B. If the expected returns on these stocks are 10 percent and 16 percent, respectively, **what is expected return on the portfolio?**

** **

**Problem #4**

**Calculating Expected Return. **Based on the following information, calculate the expected return.

Stare of Economy Probability of State of Economy Rate of Return if State Occurs

Recession .25 -.09

Normal .45 .11

Boom .30 .30

**Problem #5 **

**Returns and Standard Deviations. **Consider the following information:** **

State of Probability of Rate of Return if Occurs

Economy State of Economy Stock A Stock B Stock C

Boom .15 .35 .45 .33

Good .45 .12 .10 .17

Poor .35 .01 .02 -.05

Bust .05 -.11 -.25 -.09

- Your portfolio is invested 30 percent each in A and C and 40 percent in B.
**What is the expected return of the portfolio?** **What is the variance of this portfolio? The standard deviation?**

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