The average rate of return . Risk and Return: The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment. Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment. Annual Rate of Return: The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

Question

Bartman Industries' and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2015-2020. The Winslow 5000 data are adjusted to include dividends. 1.) Use the data to calculate annual rates of return for Bartman, Reynolds, and the Winslow 5000 Index. Then calculate each entity's average return over the 5-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, the rates of return for 2015 are not avaiable because 2014 data are not given). Bartman Industries Reynolds Inc. Winslow 5000 Year Stock Price Dividend Holding period return Stock Price Dividend Holding period return Includes Divs. Holding period return 2020 $17.25 $1.15 $48.75 $3.00 11,663.98 2019 14.75…

Answer 1

Question

Chapter 8, Problem 22SP

a.

Summary Introduction

To determine: The average rate of return.

Risk and Return:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

Annual Rate of Return:

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b.

Summary Introduction

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c.

Summary Introduction

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

d.

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

e.

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

f.

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

g.

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

h.

Summary Introduction

To determine: The new portfolio’s required return.

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Bartman Industries' and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2015-2020. The Winslow 5000 data are adjusted to include dividends. 1.) Use the data to calculate annual rates of return for Bartman, Reynolds, and the Winslow 5000 Index. Then calculate each entity's average return over the 5-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, the rates of return for 2015 are not avaiable because 2014 data are not given). Bartman Industries Reynolds Inc. Winslow 5000 Year Stock Price Dividend Holding period return Stock Price Dividend Holding period return Includes Divs. Holding period return 2020 $17.25 $1.15 $48.75 $3.00 11,663.98 2019 14.75…

(Calculating rates of return) The S&P stock index represents a portfolio comprised of 500 large publicly traded companies. On December 24, 2007, the index had a value of 1,410 and on December 24, 2008, the index was approximately 926. If the average dividend paid on the stocks in the index is approximately 4.0 percent of the value of the index at the beginning of the year, what is the rate of return earned on the S&P index? What is your assessment of the relative riskiness of investing in a single stock such as Google compared to investing in the S&P index (recall from Chapter 2 that you can purchase mutual funds that mimic the returns of the index)? Question content area bottom Part 1 The rate of return earned on the S&P 500 is enter your response here%. (Round to two decimal places.)

Answer 2

Question

Chapter 8, Problem 22SP

a.

Summary Introduction

To determine: The average rate of return.

Risk and Return:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

Annual Rate of Return:

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b.

Summary Introduction

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c.

Summary Introduction

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

d.

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

e.

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

f.

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

g.

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

h.

Summary Introduction

To determine: The new portfolio’s required return.

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Answer 3

Question

Chapter 8, Problem 22SP

a.

Summary Introduction

To determine: The average rate of return.

Risk and Return:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

Annual Rate of Return:

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b.

Summary Introduction

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c.

Summary Introduction

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

d.

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

e.

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

f.

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

g.

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

h.

Summary Introduction

To determine: The new portfolio’s required return.

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Answer 4

Question

Chapter 8, Problem 22SP

a.

Summary Introduction

To determine: The average rate of return.

Risk and Return:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

Annual Rate of Return:

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b.

Summary Introduction

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c.

Summary Introduction

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

d.

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

e.

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

f.

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

g.

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

h.

Summary Introduction

To determine: The new portfolio’s required return.

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Answer 5

Chapter 8, Problem 22SP

a.

Summary Introduction

To determine: The average rate of return.

Risk and Return:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

Annual Rate of Return:

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b.

Summary Introduction

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c.

Summary Introduction

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

d.

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

e.

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

f.

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

g.

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

h.

Summary Introduction

To determine: The new portfolio’s required return.

Answer 6

Chapter 8, Problem 22SP

a.

Summary Introduction

To determine: The average rate of return.

Risk and Return:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

Annual Rate of Return:

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

Answer 7

Chapter 8, Problem 22SP

a.

Summary Introduction

To determine: The average rate of return.

Risk and Return:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

Annual Rate of Return:

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

Answer 8

b.

Summary Introduction

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

Answer 9

b.

Summary Introduction

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

Answer 10

c.

Summary Introduction

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

Answer 11

c.

Summary Introduction

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

Answer 12

d.

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

Answer 13

d.

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

Answer 14

e.

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

Answer 15

e.

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

Answer 16

f.

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

Answer 17

f.

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

Answer 18

g.

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

Answer 19

g.

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

Answer 20

h.

Summary Introduction

To determine: The new portfolio’s required return.

Answer 21

h.

Summary Introduction

To determine: The new portfolio’s required return.

Answer 22

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Answer 33

Ch. 8 - Prob. 1Q Ch. 8 - Prob. 2Q Ch. 8 - Prob. 3Q Ch. 8 - Is it possible to construct a portfolio of...Ch. 8 - Stock A has an expected return of 7%, a standard...Ch. 8 - A stock had a 12% return last year, a year when...Ch. 8 - If investors aversion to risk increased, would the...Ch. 8 - Prob. 8Q Ch. 8 - In Chapter 7, we saw that if the market interest...Ch. 8 - Prob. 1P

Solution Summary: The author explains the relationship between risk and return. The Greek letter sigma represents the standard deviation.

Concept explainers

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

To prepare: A scatter diagram showing the company’s returns and the index returns.

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

To determine: The required returns of the two companies by security market line equation.

To determine: The beta and the required return for a newly constructed portfolio.

To determine: The new portfolio’s required return.

Chapter 8 Solutions

Solution Summary: The author explains the relationship between risk and return. The Greek letter sigma represents the standard deviation.

Concept explainers

To prepare: The standard deviation for the given data. Standard deviation: The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

To determine: The coefficient of variation. The coefficient of variation: The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

To prepare: A scatter diagram showing the company’s returns and the index returns.

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

To determine: The required returns of the two companies by security market line equation.

To determine: The beta and the required return for a newly constructed portfolio.

To determine: The new portfolio’s required return.

Chapter 8 Solutions

To prepare: The standard deviation for the given data.

Standard deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

To determine: The coefficient of variation.

The coefficient of variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.