Question

Answer all of the following questions. For each answer, show your work to get full points (stating the answer alone is not sufficient). 1. You purchased 1,000 shares of stock ABC for $46 per share and 400 shares of stock XYZ for $159 per share exactly one year ago. During the year, stock ABC paid a $.60 dividend per share and XYZ did not pay a dividend. The current stock prices are ABC=S41 per share and XYZ = $174 per share. Answer the following (showing all work): (a) Calculate the actual return on your investment in (1) ABC, (11) XYZ and (111) the portfolio over the last year (b) Calculate (i) the dividend yield and (ii) the percentage capital gain for the portfolio (c) Calculate the real rate of return on the portfolio if the inflation rate was 2%.

Answer 1

As given in no. of shares Last year price (P.) Dividend per share Current Price (P.) the question - ABC Xyz. 1000 460 $46 $ 159 $0.60 $41 $ 174. ABE XYZ Actual Return = (1, - Polt de AR for ABC = (41-46) + 0.60 – – 9.57% 46 AR for XY2 - (174-159) to = 159 9.43%. Actual return of the portfolio - WABCX ARABL t WxyzX ARXyz – 1000 X -9.57 + 400 x 9.43 1400 1400 .7 x -9.57 t 29 x 9.43 2 – 6.7947 f 2.7347 2 - 4.06). TU

Dividend Yield Dividend Price x 100 Dy for ABC Dy for XYZ = .60 = 1.46%. & NIL (dividend hot paid) 41 Capital gains % = {P. - po x 100 I PT ABC - - 10.87%.. 41 - 46 x 100 = 46 174-159 7100 - 159 X42 9.43% i) Dy for the portfolio - WABC DYABC & Wxyż DYxy .7 X 1.46 t •29 x o . 7 104 %.. 1) CG I. for the portfolio - WABC XCG Y.ABL & Wxyzx CG l.xyz 2 .1 x - 10.87 t .29 X 9.43 - 7.72 + € 2.93 - 4.99% NNN c) Return of the portfolio (Real Rate) = (1+ Nominal Rate]- 1 [ It Inflation Rate I-1.0406 - 1 1.02 - 2.02 %