epresents shares outstanding at time t. Stock C splits two-for-one in the last period ( P₁ Q1 P2 QO 100 105 100 200 55 200 200 130 200 Po A 100 B 60 C 120 Rate of return 105 55 65 Calculate the first-period rates of return on the following indexes of the three stocks to t = 1): (Do not round intermediate calculations. Round your answers to 2 dec places.) . A market value-weighted index. % Q2 100 200 400
epresents shares outstanding at time t. Stock C splits two-for-one in the last period ( P₁ Q1 P2 QO 100 105 100 200 55 200 200 130 200 Po A 100 B 60 C 120 Rate of return 105 55 65 Calculate the first-period rates of return on the following indexes of the three stocks to t = 1): (Do not round intermediate calculations. Round your answers to 2 dec places.) . A market value-weighted index. % Q2 100 200 400
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 7P
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:Consider the three stocks in the following table. Pt represents price at time t, and Qt
represents shares outstanding at time t. Stock C splits two-for-one in the last period (t=2).
Po
A 100
B 60
C
120
Qo
100
200
200
P₁
105
55
130
Rate of return
b. An equally weighted index.
Rate of return
Q₁
100
200
200
%
P2
%
105
55
65
Calculate the first-period rates of return on the following indexes of the three stocks (t =
O to t = 1): (Do not round intermediate calculations. Round your answers to 2 decimal
places.)
a. A market value-weighted index.
Q2
100
200
400
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