Calculate the expected value, Microeconomics

Assignment Help:

1) Investments

1A)

What are the two components to total return?  What does expected value measure?  What does standard deviation measure?  How can each result be used to help us purchase securities?

1B)

DATE

PRICE

DIVIDEND

Jan 2000

100.00

0.00

Jan 2001

121.55

2.25

Jan 2002

139.81

2.55

Jan 2003

138.01

2.02

Jan 2004

141.22

1.01

Jan 2005

204.23

3.09

Jan 2006

201.29

2.98

Jan 2007

169.31

1.92

Jan 2008

141.40

1.33

Jan 2009

140.55

1.25

Jan 2010

139.02

1.11

Calculate the total return:

From Jan 2000 to Jan 2010

From Jan 2000 to Jan 2003

From Jan 2003 to Jan 2004

Calculate the standard deviation of price

From Jan 2001 to Jan 2002

From Jan 2002 to Jan 2008

2)   Equities

2A)

Why is a healthy equity market important for a country?

What alternatives exist for funding if companies can't raise money in the equity markets?

2B)

Calculate the share price of a company the pays a fixed dividend of £2.30 pa when the required rate of return demanded by equity investors is 3%.  What will the price be if investors demand 12% to hold these same shares?  What will be the price if investors demand 3% to hold these same shares?

What will the share price be under all three scenarios if dividends grow by a rate of 1.5% pa?


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