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Problems 1-24
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
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Chapter 12
Question 1
Input area:
Initial price
Dividend paid
Ending share price
$
$
$
91
2.40
102
Output area:
Total return
14.73%
Chapter 12
Question 2
Input area:
Initial price
Dividend paid
Ending share price
$
$
$
91
2.40
102
Output area:
Dividend yield
Capital gains yield
2.64%
12.09%
Chapter 12
Question 3
Input area:
Initial price
Dividend paid
Ending share price
$
$
91
2.40
83
Output area:
Total return
Dividend yield
Capital gains yield
-6.15%
2.64%
-8.79%
Chapter 12
Question 4
Input area:
Initial price
Coupon paid
Ending price
Inflation rate
$ 1,040
$
70
$ 1,070
4%
Output area:
a. Dollar return
$ 100.00
b. Nominal return
9.62%
c. Real return
5.40%
Chapter 12
Question 5
Input area:
Nominal return
Inflation rate
12.30%
3.10%
Output area:
a. Nominal return
b. Real return
12.30%
8.92%
Chapter 12
Question 6
Input area:
Long-term government
Long-term corporate
Inflation rate
5.80%
6.20%
3.10%
Output area:
2.62%
3.01%
Chapter 12
Question 7
Input area:
Year
1
2
3
4
5
X
8%
21%
17%
-16%
9%
X
1
2
3
4
5
Total
Average return
Actual
Return
0.08
0.21
0.17
(0.16)
0.09
0.39
7.80%
Y
16%
38%
14%
-21%
26%
Output area:
Variance
Standard Deviation
X
1
2
3
4
5
Total
Average return
Average
Return
0.08
0.08
0.08
0.08
0.08
Deviation
0.00
0.13
0.09
(0.24)
0.01
Average
Return
0.15
0.15
0.15
0.15
0.15
Deviation
0.01
0.23
(0.01)
(0.36)
0.11
0.020670
14.38%
Actual
Return
0.16
0.38
0.14
(0.21)
0.26
0.73
14.60%
Variance
Standard Deviation
0.048680
22.06%
Squared
Deviation
0.00000
0.01742
0.00846
0.05664
0.00014
0.08268
Squared
Deviation
0.00020
0.05476
0.00004
0.12674
0.01300
0.19472
Chapter 12
Question 8
Input area:
Year
1970
1971
1972
1973
1974
1975
Large
Stocks
3.94%
14.30%
18.99%
-14.69%
-26.47%
37.23%
T-bills
6.50%
4.36%
4.23%
7.29%
7.99%
5.87%
Output area:
Actual
Return
0.0394
0.1430
0.1899
(0.1469)
(0.2647)
0.3723
0.3330
5.55%
Average
Return
0.0555
0.0555
0.0555
0.0555
0.0555
0.0555
Deviation
(0.0161)
0.0875
0.1344
(0.2024)
(0.3202)
0.3168
Squared
Deviation
0.00026
0.00766
0.01806
0.04097
0.10253
0.10036
0.26983
Average
Return
0.0604
0.0604
0.0604
0.0604
0.0604
0.0604
Deviation
0.0046
(0.0168)
(0.0181)
0.0125
0.0195
(0.0017)
Squared
Deviation
0.00002
0.00028
0.00033
0.00016
0.00038
0.00000
0.00117
0.053967
23.23%
T-bill returns
Year
1970
1971
1972
1973
1974
1975
Total
Average return
Variance =
Standard deviation =
Actual
Return
0.0650
0.0436
0.0423
0.0729
0.0799
0.0587
0.3624
6.04%
0.000234
1.53%
Actual
(0.0256)
0.0994
0.1476
(0.2198)
(0.3446)
0.3136
(0.0294)
-0.49%
Average
(0.0049)
(0.0049)
(0.0049)
(0.0049)
(0.0049)
(0.0049)
Deviation
(0.0207)
0.1043
0.1525
(0.2149)
(0.3397)
0.3185
Squared
Deviation
0.00043
0.01088
0.02326
0.04618
0.11540
0.10144
0.29758
0.059517
24.40%
d. Before the fact, for most assets the risk premium will be positive; investors
demand compensation over and above the risk-free return to invest their
money in the risky asset. After the fact, the observed risk premium can be
negative if the asset's nominal return is unexpectedly low, the risk-free rate is
unexpectedly high, or if some combination of these two events occurs.
Chapter 12
Question 9
Input area:
Year
1
2
3
4
5
Returns
7%
-12%
11%
38%
14%
X
1
2
3
4
5
Total
Average return
Actual
Return
0.07
(0.12)
0.11
0.38
0.14
0.58
11.60%
Output area:
Variance =
Standard Deviation =
0.032030
17.90%
Average
Return
0.12
0.12
0.12
0.12
0.12
Deviation
(0.05)
(0.24)
(0.01)
0.26
0.02
Squared
Deviation
0.00212
0.05570
0.00004
0.06970
0.00058
0.12812
Chapter 12
Question 10
Input area:
Stock return
Average inflation
Average T-bill rate
11.60%
3.50%
4.20%
Output area:
7.83%
7.40%
Chapter 12
Question 11
Input area:
Stock return
Average inflation
Average T-bill rate
11.60%
3.50%
4.20%
Output area:
0.68%
7.15%
Chapter 12
Question 12
T-bill rate were the highest in the early eighties. This was a
period of high inflation and is consistent with the Fisher effect.
Chapter 12
Question 13
Input area:
Purchase price
Coupon rate
Current YTM
Maturity (years)
Settlement
Maturity
Inflation rate
1,030.00
8.00%
7.00%
6
01/01/08
01/01/14
4.20%
1,047.67
9.48%
Output area:
Current price
Nominal return
Real return
5.07%
Chapter 12
Question 14
Input area:
Year
1
2
3
4
Average return
Returns
7%
-12%
18%
19%
10.50%
Output area:
52.50%
32.00%
Missing return
20.50%
X
1
2
3
4
5
Total
Average return
Variance =
Standard Deviation =
Actual
Return
0.070
(0.120)
0.180
0.190
0.205
0.525
0.1050
0.018675
13.67%
Average
Return
0.11
0.11
0.11
0.11
0.11
Deviation
(0.035)
(0.225)
0.075
0.085
0.100
Squared
Deviation
0.00123
0.05063
0.00563
0.00723
0.01000
0.07470
Chapter 12
Question 15
Input Area:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
3%
38%
21%
-15%
29%
-13%
Output Area:
Arithmetic return
10.50%
Geometric return
8.60%
Chapter 12
Question 16
Input area:
Year
1
2
3
4
5
6
$
$
$
$
$
$
Price
60.18
73.66
94.18
89.35
78.49
95.05
$
$
$
$
$
$
Dividend
0.60
0.64
0.72
0.80
1.20
Output area:
Year
1 to 2
2 to 3
3 to 4
4 to 5
5 to 6
Capital Gains
Yield
22.40%
27.86%
-5.13%
-12.15%
21.10%
Arithmetic return
11.83%
Geometric return
10.58%
Dividend
Yield
1.00%
0.87%
0.76%
0.90%
1.53%
Total
Return
23.40%
28.73%
-4.36%
-11.26%
22.63%
Chapter 12
Question 17
Input area:
6.20%
8.40%
-2.20%
Output area:
-2.20% =
Lower return
-10.60%
-19.00%
15.87%
Upper return
23.00%
31.40%
Chapter 12
Question 18
Input area:
17.10%
32.60%
Output area:
0.550%
0.00000100913%
Chapter 12
Question 19
Chapter 12
Question 20
Input Area:
Arithmetic return
Years of historical estimation
Geometric return
Years for future estimation
15.30%
40
11.90%
20
Output Area:
13.64%
Chapter 12
Question 21
Input Area:
Arithmetic return
Years of historical estimation
Geometric return
Years for future estimation
12.30%
82
10.40%
30
Output Area:
11.62%
Chapter 12
Question 22
Input area:
Year
1973
1974
1975
1976
1977
1978
1979
1980
Output area:
T-bills
7.29%
7.99%
5.87%
5.07%
5.45%
7.64%
10.56%
12.10%
Inflation
8.71%
12.34%
6.94%
4.86%
6.70%
9.02%
13.29%
12.52%
T-bills
Year
1990
1991
1992
1993
1994
1995
1996
1997
Total
Average return
Actual
Return
0.0729
0.0799
0.0587
0.0507
0.0545
0.0764
0.1056
0.1210
0.6197
0.0775
Variance =
0.000616
Standard deviation =
Average
Return
0.0775
0.0775
0.0775
0.0775
0.0775
0.0775
0.0775
0.0775
Deviation
(0.0046)
0.0024
(0.0188)
(0.0268)
(0.0230)
(0.0011)
0.0281
0.0435
Squared
Deviation
0.00002
0.00001
0.00035
0.00072
0.00053
0.00000
0.00079
0.00190
0.00431
Average
Return
0.0930
0.0930
0.0930
0.0930
0.0930
0.0930
0.0930
0.0930
Deviation
(0.0059)
0.0304
(0.0236)
(0.0444)
(0.0260)
(0.0028)
0.0399
0.0322
Squared
Deviation
0.00003
0.00093
0.00056
0.00197
0.00067
0.00001
0.00159
0.00104
0.00680
Average
Return
(0.0140)
(0.0140)
(0.0140)
(0.0140)
(0.0140)
(0.0140)
(0.0140)
(0.0140)
Deviation
0.0009
(0.0247)
0.0040
0.0160
0.0023
0.0013
(0.0101)
0.0103
Squared
Deviation
0.00000
0.00061
0.00002
0.00026
0.00001
0.00000
0.00010
0.00011
0.00110
2.48%
Inflation
Year
1990
1991
1992
1993
1994
1995
1996
1997
Total
Average return
Actual
Return
0.0871
0.1234
0.0694
0.0486
0.0670
0.0902
0.1329
0.1252
0.7438
0.0930
Variance =
0.000971
Standard deviation =
3.12%
0.000157
1.25%
d. The statement that T-bills have no risk refers to the fact that there is only an
extremely small chance of the government defaulting, so there is little default
risk. Since T-bills are short-term, there is also very limited interest rate risk.
However, as this example shows, there is inflation risk, i.e. the purchasing
power of the investment can actually decline over time even if the investor
is earning a positive return.
Chapter 12
Question 23
Input area:
Average return
Standard deviation
Return less than
12.30%
20.00%
0.00%
Output area:
0.00% =
26.93%
Chapter 12
Question 24
Input area:
6.20%
8.40%
3.80%
3.10%
10.00%
0.00%
10.00%
0.00%
-4.18%
10.56%
Output area:
10.00%
0.00%
=
=
32.55%
23.02%
10.00%
0.00%
=
=
2.28%
11.01%
-4.18%
10.56%
=
=
10.83%
1.46%