What is the standard deviation of returns

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Reference no: EM131459403

Assignment

Part 1 - Capital Market History

1. If you 100 shares of stock for $4439 and in a year, you sell the shares for $49.67 per share, what is your capital gain (dollar amount) and your capital gain percentage?

2. If you received dividends of $165 during the year, what was your dividend yield? What was your total return for the year?

Consider a series of returns for a 10 year period:

Year	Return
1	3.5%
2	13.3%
3	-2.7%
4	-23.5%
5	13.9%
6	24.3%
7	8.7%
8	2.1%
9	33.2%
10	-8.9%

3. What is the average rate of return?

4. What is the standard deviation of returns?

5. What is the holding period return for the 10 years? (Hint: If you started with $100, how much would you end up with after 10 years?)

6. What is the geometric average rate of return?

Consider a stock with the following information on a per share amount:

Year	Price	Dividend	Cap Gain	Div
0 (Initial Purchase)	33.95	n/a
1 (first year of holding stock)	34.25	1.01	0.88%	2.97%
2	33.06	1.04	-3.47%	3.04%
3	36.19	1.08	9.47%	3.27%
4	37.22	1.13	2.85%	3.12%
5	35.25	1.20	-5.29%	3.22%
6	39.97	1.28	13.39%	3.63%

7. What are the capital gains, dividend yields and total returns for each of the 6 years that you hold the stock?

8. What is the average rate of return?

9. What is the geometric average rate of return?

Part Two - WACC Calculations

Summerdahl's common stock is currently trading at $36 per share. The stock is expected to pay a dividend of $3.00 per share at the end of the year and the dividend is expected to grow at a constant rate of 5% per year. What is the cost of common equity?

BooBoo Bookstores has a beta of 0.8. The yield on a 3-month T-Bill is 1.1% and the market risk premium is 6.6%. What is the estimated cost of equity using CAPM?

A company's 6% coupon rate, semiannual payment, $1000 par value bond that matures in 20 years sells for $545. The company's marginal tax rate (state plus federal) is 35%. What is the firm's after-tax cost of debt for the purposes of calculating WACC.

An analyst has collected the following information regarding Christopher Co.:

• The company's capital structure is 50% common equity, 10% preferred equity and 40% debt.
• The yield to maturity on the company's bonds is 9 percent.
• The company's year-end dividend on common stock is forecasted to be $0.80 a share.
• The company expects that its dividend will grow at a constant rate of 9 percent a year.
• The company's stock price is $25.
• The company's preferred stock is priced at $20 and has a dividend of $2.20 per share.
• The company's tax rate is 40 percent.
• The company anticipates that it will need to raise new common stock and preferred stock this year. Its investment bankers anticipate that the total flotation cost will equal 5 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's WACC.

Reference no: EM131459403

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