The annual rate of return and average return over 5 years’ period. Introduction: 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. 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 annual rate of return and average return over 5 years’ period.

Introduction:

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.

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.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

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

f)

Summary Introduction

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

g)

Summary Introduction

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

h)

Summary Introduction

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

i)

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…

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. Calculate the standard deviations of the returns for Bartman, Reynolds, and the Winslow 5000. (Hint: Use the sample standard deviation formula, STDEV function in Excel). 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 1.06 52.30 2.90 8,785.70 2018 16.50 1.00 48.75 2.75 8,679.98 2017 10.75 0.95 57.25 2.50 6,434.03 2016 11.37 0.90 60.00 2.25 5,602.28 2015 7.62 55.75 4,705.97

Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Five years of realized returns for Falcon Freight Inc. (Falcon) are given in the following table: 2016 2017 2018 2019 2020 Stock return 25.00% 17.00% 30.00% 42.00% 13.00% Also note that: 1. While Falcon was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on Falcon's equity are calculated as arithmetic returns. Given this return data, the average realized return on Falcon Freight Inc.’s stock is . The preceding data series represents a sample of Falcon’s historical returns. Based on this conclusion, the standard deviation of Falcon’s historical returns is . If investors expect the average realized return on Falcon Freight Inc.’s stock from…

Answer 2

Question

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

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.

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.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

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

f)

Summary Introduction

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

g)

Summary Introduction

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

h)

Summary Introduction

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

i)

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 annual rate of return and average return over 5 years’ period.

Introduction:

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.

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.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

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

f)

Summary Introduction

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

g)

Summary Introduction

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

h)

Summary Introduction

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

i)

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 annual rate of return and average return over 5 years’ period.

Introduction:

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.

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.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

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

f)

Summary Introduction

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

g)

Summary Introduction

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

h)

Summary Introduction

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

i)

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 annual rate of return and average return over 5 years’ period.

Introduction:

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.

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.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

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

f)

Summary Introduction

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

g)

Summary Introduction

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

h)

Summary Introduction

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

i)

Summary Introduction

To determine: The new portfolio’s required return.

Answer 6

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

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.

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 annual rate of return and average return over 5 years’ period.

Introduction:

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.

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.

Introduction:

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.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

Answer 11

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

Answer 12

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

Answer 13

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

Answer 14

e)

Summary Introduction

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

Answer 15

e)

Summary Introduction

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

Answer 16

f)

Summary Introduction

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

Answer 17

f)

Summary Introduction

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

Answer 18

g)

Summary Introduction

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

Answer 19

g)

Summary Introduction

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

Answer 20

h)

Summary Introduction

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

Answer 21

h)

Summary Introduction

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

Answer 22

i)

Summary Introduction

To determine: The new portfolio’s required return.

Answer 23

i)

Summary Introduction

To determine: The new portfolio’s required return.

Answer 24

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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. 10Q

Concept explainers

To prepare: The standard deviation for the given data.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

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

Concept explainers

To prepare: The standard deviation for the given data. Introduction: 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. Introduction: The coefficient of variation is a tool to determine the investment’s volatility.

To determine: Sharpe ratio Introduction: Sharpe ratio helps to determine the performance of the investment.

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.

Introduction:

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.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.