Question

Question 1

If your stock moves from $93 to $109 over one year and also pays $3 in dividends, the rate of return would be:  Answer as a percent return  to the nearest hundredth of a percent

Question 2

  If your stock moves from $109 to $89 over one year and also pays $6 in dividends, the rate of return would be:  Answer as a percent return  to the nearest hundredth of a percent

Question 3

A firm's stock has 50% chance of a 20% rate of return. a  30% chance of a 15% rate of return. and a  20% chance of a -25% rate of return. What is the expected return for this stock? Answer as a percent return  to the nearest hundredth of a percent

Answer 1

The return is computed as shown below:

= (Price in one year - current price + dividend) / current price

= ($ 109 - $ 93 + $ 3) / $ 93

= 20.43% Approximately

The return is computed as shown below:

= (Price in one year - current price + dividend) / current price

= ($ 89 - $ 109 + $ 6) / $ 109

= - 12.84% Approximately

The expected return is computed as shown below:

= 50% x return of 20% + 30% x return of 15% + 20% x return of - 25%

= 0.50 x 0.20 + 0.30 x 0.15 + 0.20 x - 0.25

= 9.50%

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