2.   Calculating Yields. In Problem 1, what was the dividend yield? The capital gains yield? (K)

3.   Calculating Returns. Rework Problems 1 and 2 assuming the ending share price is $71. (K)

4.   Calculating Returns. Suppose you bought an 8% coupon bond one year ago for $1090. The bond sells for $1063 today
a.   Assuming a $1000 face value, what was your total dollar return on this investment over the past year?
 b.   What was your total nominal rate of return on this investment over the past year?
 c.   If the inflation rate last year was 3%, what was your total real rate of return on this investment? (K)

 

p. 325 5.   Nominal versus Real Returns. What was the average annual return on company shares as measured by the All Ordinaries Index from 1985 to 2009:

6.   Bond Returns. What is the historical real return on tenyear government bonds? (K)

7.   Calculating Returns and Variability. Using the following returns, calculate the average returns, the variances and the standard deviations for X and Y. (K)
 

8.   Risk Premiums. Refer to Table 10.1 in the text and look at the period from March 2000 to December 2004.
a.   Calculate the average returns for the All Ordinaries Index and cash over this period.
 b.   Calculate the standard deviation of the returns for the All Ordinaries Index and cash over this
time period.
 c.   Calculate the observed risk premium in each year for the All Ordinaries Index and cash. What
was the average risk premium over this period? What was the standard deviation of the risk
premium over this period?
 d.   Is it possible for the risk premium to be negative before an investment is undertaken? Can
the risk premium be negative after the fact? Explain. (K)


9.   Calculating Returns and Variability. You have observed the following returns on White Sands Ltd shares over the past five years: −25%, 36%, 9%, 11% and 17%.
a.   What was the average return on White Sands shares over this fiveyear period?
 b.   What was the variance of White Sands share returns over this period? The standard
deviation? (K)


10.   Calculating Real Returns and Risk Premiums. For Problem 9, suppose the average inflation rate over this period was 4.2% and the average government bond rate over the period was 5.1%.
a.   What was the average real return on White Sands shares?
 b.   What was the average nominal risk premium on White Sands shares? (K)


11.   Calculating Real Rates. Given the information in Problem 10, what was the average real riskfree rate over this time period? What was the average real risk premium? (K)

12.   Effects of Inflation. Look at Table 10.1 and Figure 10.7 in the text. When were cash rates at their highest over the period from 1985 to 2009? Why do you think they were so high during this period? What relationship underlies your answer? (K)& (K)

13.   Calculating Returns.You purchased a $1000 zero coupon bond one year ago for $162.87. The market interest rate isnow 9%. If the bond had twenty years to maturity when you originally purchased it, what was your total return for the past year? (K)

14.   Calculating Returns. You bought a 6% $100 par value preference share for $95.12 last year. The market price for your preference share is now $93.80. What is your total return for last year? (K)

15.   Calculating Returns. You bought a $100 000 bond from Melba's Bread last year. When you bought the bond, it had fifteen years until maturity and a YTM of 6.5%. The coupon rate is 9% paid annually. The current market rate for bonds of this type is 8%. What was your rate of return for the year? (K)

16.   Calculating Returns and Variability. A share has had returns of 10%, −8%, 11%, 19% and 15% for the last five years. What are the average return and standard deviation for this share? (K)

p. 326 17.   Calculating Returns. You bought a share three months ago for $41.05. The share paid no dividends. The current share price is $46.81. What is the ARR of your investment? The EAR? (K)

18.   Calculating Real Returns. Refer to Table 10.1. What was the average real return for government bonds from March 1986 to December 1987? (K)

19.   Calculating Returns and Variability. A share had annual returns of −18%, 2%, 25%, 12% and 14%. What are the average return and standard deviation for this share? (K)

20.   Calculating Returns. A share was priced at $21.18 at the beginning of the year and $26.72 at the end of the year. The company also paid a dividend of $0.38 per share. What was the total return for the year? (K)

21.   Calculating Returns and Variability. A share had annual returns of 14%, −12%, 11%, 24%, 16% and 17% for the past six years. What are the average return and standard deviation for this share? (K)

22.   Return Distributions. Refer back to Figure 10.10. What range of returns would you expect to see 68% of the time for government bonds? What about 95% of the time? (K)

23.   Return Distributions. Refer back to Figure 10.10. What range of returns would you expect to see 68% of the time for company shares? What about 95% of the time? (K)
