FIN 501 : Fin501 notes.docx

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amaranthmanatee702

14 Dec 2013

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Percentage returns: how much do we get for each dollar we invest. Price of the stock at beginning of the year. Three important categories of financial investments: large company stocks, canadian treasury bills. Total market capitalization (market cap): equal to its stock price multiplied by the number of shares of stock: the value of the company"s stock, large companies large cap stocks, small companies small cap stocks. Risk premiums: risk free rate: the rate of return on a riskless investment, risk premium: the extra return on a risky asset over the risk-free rate; the reward for bearing risk. The difference between risk free stock and risky return stock. There is a reward for bearing more risk. With unequal probable outcomes probable outcomes: standard deviation: the square root of the variance. Normal distribution : a symmetric, bell-shaped frequency distribution that is completely defined by its average and standard deviation.

Related Questions

1. Suppose you bought a 16 percent coupon bond one year ago for $1,130.

â¢The bond sells for $1,190 today.

â¢What is your realized percentage return if you sell the bond today?

2. Suppose a stock had an initial price of $77 per share, paid a dividend of $1.05 per share during the year, and had an ending share price of $83.

âWhat is the dividend yield?

âWhat is the capital gains yield?

3. Average annual return is a good measure of expected return when?

A.Returns are volatile over time

B.The distribution of possible returns does not change over time

C.Negative estimation errors cancel out positive estimation errors

D.Never - this is not a good measure of expected return

aquamarinehornet444

The expected pretax return on three stocks is divided between dividends and capital gains in the following way:

Stock	Expected Dividend	Expected Capital Gain
A	$ 0	$ 7
B	2	2
C	23	0

If each stock is priced at $100, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 45% (The effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Stock	Pension	Investor Corporation	Individual
A	%	%	%
B	%	%	%
C	%	%	%

Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock	Price
A	$
B	$
C	$

The expected pretax return on three stocks is divided between dividends and capital gains in the following way:

Stock	Expected Dividend	Expected Capital Gain
A	$ 0	$ 3
B	13	13
C	27	0

If each stock is priced at $100, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 45% (The effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Stock	Pension	Investor Corporation	Individual
A	%	%	%
B	%	%	%
C	%	%	%

Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock	Price
A	$
B	$
C	$

FIN 501 : Fin501 notes.docx

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