FUND. OF CORPORATE FIN. 18MNTH ACCESS
15th Edition
ISBN: 9781259811913
Author: Ross
Publisher: MCG CUSTOM
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Textbook Question
Chapter 12, Problem 5QP
Nominal versus Real Returns [LO2] What was the average annual return on large-company stock from 1926 through 2013:
a. In nominal terms?
b. In real terms?
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Mf2.
1. Consider the data in the following table for a hypothetical two-stock version of the Dow Jones Industrial Average.
a) Calculate the percentage change in the index value.
b) Suppose firm XYZ from part (a) were to split two for one during the period (price drops to $35 immediately after the split and the new final price is $30). Calculate the percentage change in the index value.
c) If this was for S&P500-type index, what is the percentage change in the index value? Is it affected by the stock split of firm XYZ?
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Item2
Assume these were the inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933:
Year
Inflation(%)
Stock Market Return(%)
T-Bill Return(%)
1929
0.4
–14.6
4.8
1930
–3.9
–27.1
2.9
1931
–8.2
–49.8
1.4
1932
–10.8
–6.4
0.9
1933
1.0
63.8
0.5
What was the real return on the stock market in each year?
What was the average real return?
What was the risk premium in each year?
What was the average risk premium?
Question 4
A. Contrast the nominal rate of interest with the real rate of interest.
B. Why would “a belief in the segmented markets theory of the term structure” implies “a belief in market inefficiency”.
C. Suppose you purchased a stock at the end of 2017 and sold it at the end of 2019. The year-end stock prices are shown below and the stock paid no dividends.
2017
2018
2019
$100
$112
$100
(i). Compute the average annual return according to the arithmetic mean method.
(ii). Compute the average annual return according to the geometric mean method.
(iii). Compare the results in (i) and (ii), and indicate which is more intuitively appealing in assessing the performance of your investment.
Question 5
A. What does it mean to say that a bond has a value less than one for its relative yield differential? What might account for such a difference?
B. Why is the maturity of some bonds ambiguous?
C. Assume the following characteristics for a particular bond:
Face…
Chapter 12 Solutions
FUND. OF CORPORATE FIN. 18MNTH ACCESS
Ch. 12.1 - Prob. 12.1ACQCh. 12.1 - Why are unrealized capital gains or losses...Ch. 12.1 - What is the difference between a dollar return and...Ch. 12.2 - Prob. 12.2ACQCh. 12.2 - Why doesnt everyone just buy small stocks as...Ch. 12.2 - What was the smallest return observed over the 88...Ch. 12.2 - About how many times did large-company stocks...Ch. 12.2 - What was the longest winning streak (years without...Ch. 12.2 - How often did the T-bill portfolio have a negative...Ch. 12.3 - Prob. 12.3ACQ
Ch. 12.3 - What was the real (as opposed to nominal) risk...Ch. 12.3 - Prob. 12.3CCQCh. 12.3 - What is the first lesson from capital market...Ch. 12.4 - In words, how do we calculate a variance? A...Ch. 12.4 - With a normal distribution, what is the...Ch. 12.4 - Prob. 12.4CCQCh. 12.4 - What is the second lesson from capital market...Ch. 12.5 - Prob. 12.5ACQCh. 12.5 - Prob. 12.5BCQCh. 12.6 - What is an efficient market?Ch. 12.6 - Prob. 12.6BCQCh. 12 - Chase Bank pays an annual dividend of 1.05 per...Ch. 12 - The risk premium is computed as the excess return...Ch. 12 - Prob. 12.4CTFCh. 12 - Prob. 12.5CTFCh. 12 - Prob. 12.6CTFCh. 12 - Investment Selection [LO4] Given that Fannie Mae...Ch. 12 - Prob. 2CRCTCh. 12 - Risk and Return [LO2, 3] We have seen that over...Ch. 12 - Market Efficiency Implications [LO4] Explain why a...Ch. 12 - Efficient Markets Hypothesis [LO4] A stock market...Ch. 12 - Semistrong Efficiency [LO4] If a market is...Ch. 12 - Efficient Markets Hypothesis [LO4] What are the...Ch. 12 - Stocks versus Gambling [LO4] Critically evaluate...Ch. 12 - Efficient Markets Hypothesis [LO4] Several...Ch. 12 - Efficient Markets Hypothesis [LO4] For each of the...Ch. 12 - Calculating Returns [LO1] Suppose a stock had an...Ch. 12 - Calculating Yields [LO1] In Problem 1, what was...Ch. 12 - Prob. 3QPCh. 12 - Prob. 4QPCh. 12 - Nominal versus Real Returns [LO2] What was the...Ch. 12 - Bond Returns [LO2] What is the historical real...Ch. 12 - Prob. 7QPCh. 12 - Risk Premiums [LO2, 3] Refer to Table 12.1 in the...Ch. 12 - Calculating Returns and Variability [LO1] Youve...Ch. 12 - Calculating Real Returns and Risk Premiums [LO1]...Ch. 12 - Calculating Real Rates [LO1] Given the information...Ch. 12 - Prob. 12QPCh. 12 - Prob. 13QPCh. 12 - Calculating Returns and Variability [LO1] You find...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Using Return Distributions [LO3] Suppose the...Ch. 12 - Prob. 18QPCh. 12 - Distributions [LO3] In Problem 18, what is the...Ch. 12 - Blumes Formula [LO1] Over a 40-year period an...Ch. 12 - Prob. 21QPCh. 12 - Calculating Returns [LO2, 3] Refer to Table 12.1...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Prob. 1MCh. 12 - Prob. 2MCh. 12 - Prob. 3MCh. 12 - Prob. 4MCh. 12 - A measure of risk-adjusted performance that is...Ch. 12 - Prob. 6M
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