Finance Scenario Analysis

In: Business and Management

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A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $4 per share and sells for $48. a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? Initial selling price 40 Dividend 4 Selling price of stock after dividend 48 a. Total rate of return 30.00% b. Dividend Yield 10.00% % capital gain 20.00% You purchase 100 shares of stock for $50 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment for the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 3%. Purchase value 100 shares 50 Rate of Return Real Rate of Return Dividend at end of year 2 a. 48 0% -2.91% Inflation 0.03 50 4% 0.97% 54 12% 8.74%

Value to cover inflation part a 51.5 Ending value part a 50 ending value part b 52 Ending value part c 56

Here are stock market and Treasury bill percentage returns between 2006 and 2010: Year Stock market return T-bill return 2006 17.27 6.3 10.97 7.1040 50 2007 7.41 6.06 1.35 -2.5160 6.33 2008 -38.83 1.8 -40.63 -44.4960 1980 2009 29.7 0.9 28.8 24.9340 622 2010 19.36 0.52 18.84 14.9740 224 2883 a. What was the risk premium on common stock in each year? Year Risk Premium 2006 10.97 2007 1.35 2008 -40.63 2009 28.80 2010 18.84 19.33 3.866 b. What was the average risk premium? Number of year 5 Avg risk prem 3.87

c. What was the standard deviation of the risk premium? 576.523224 24.01

Consider the following scenario analysis: Rate of return…...

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