Question

Question 10 Consider the following Price and Dividend data for General Electric Company: Dividend (S) Price (S) Date Dec. 31, 2008 14.64 13.35 Jan. 26, 2009 Apг. 28, 2009 Jul. 29, 2009 0.10 9.14 0.10 10.74 0.10 Oct. 28, 2009 8.02 0.10 Dec. 30, 2009 7.72 Assume that you purchased General Electric Company stock at the closing price on Dec. 31 2008 and sold it after the dividend had been paid and at the closing price on Jan. 26, 2009. a) What is your dividend yield for this period? b) What is your capital gains rate (yield) for this period? Question 11 Amelie considers investing in one stock and one bond. The following table lists the returns on the two assets in three different scenarios and the probability of each scenario occurring Scenario Probability Stock Bond 6% Recession 50% -5% 30% Normal 10% 2% Вoom 20% 20% 0% Amelie decided to form an equally-weighted portfolio by investing 50% of her wealth in the stock and 50% of her wealth in the bond. a) What is the expected return of Amelie's portfolio? b) What is the standard deviation of the returns to Amelie's portfolio?

Answer 1

(10)

Dividend Yield = Dividend Received/Investment = 0.1/14.64 = 0.683%

Capital Gain = Gain on Investment/Investment = (Selling Price-Investment Price)/Investment

= (13.35-14.64)/14.64 = -8.81%

(11)

P=Probability

R=Return=(0.5×Return from stocks)+(0.5×Return from bond)

PR=P×R

E(R)=Expected Return=Mean=Sum of PR

D=Deviation=R-E(R)

D^2=Squared Deviation=D×D

PD^2=P×D^2

Var=Variance=Sum of PD^2

SD=Standard Deviation=Var^1/2

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R. 0.5 P. 0.5 0. 3 0.2 6 50% Stock & 50% Bond PR. D D^2 0.25 -3.55 12.6025 1.8 1.95 3.8025 2 5.95 35.4025 4.05 Var= SD= PD^2 6.30125 1.14075 7.0805 14.5225 3.8108398 10 (R)= L E