are stock market and Treasury bill percentage returns between 2006 and 2010:

are stock market and Treasury bill percentage returns between 2006 and 2010:

Year	Stock Market Return	T-Bill Return
2006	17.17	6.00
2007	7.31	5.86
2008	−38.73	1.70
2009	29.40	0.80
2010	19.06	0.42

a.	What was the risk premium on common stock in each year? (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

Year	Risk Premium
2006	%
2007	%
2008	%
2009	%
2010	%

b.	What was the average risk premium? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Average risk premium

%

c.	What was the standard deviation of the risk premium? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard deviation of the risk premium

%

Explanation:

Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.

a. & b.

Year	Stock Market Return	T-Bill Return	Risk Premium	Deviation from Mean	Squared Deviation
2006	17.17	6.00	11.17	7.28	53.06
2007	7.31	5.86	1.45	−2.44	5.93
2008	−38.73	1.70	−40.43	−44.32	1,963.91
2009	29.40	0.80	28.60	24.71	610.78
2010	19.06	0.42	18.64	14.75	217.68
	Total		19.43		2,851.36
	Average		3.89		570.27

c.

The variance (the average squared deviation from the mean) was 570.27.

Therefore: Standard deviation = = 23.88%

You purchase 100 shares of stock for $50 a share. The stock pays a $4 per share dividend at year-end. What is the rate of return on your investment for the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 6%.

You purchase 100 shares of stock for $50 a share. The stock pays a $4 per share dividend at year-end. What is the rate of return on your investment for the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 6%. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your "Real Rate of Return" answers to 2 decimal places.)

	Rate of Return	Real Rate of Return
a. $46	%	%
b. $50	%	%
c. $55	%	%

Explanation:

a.

Rate of return =	capital gain + dividend	=	($46 − $50) + $4	= 0%
	initial share price		$50

Real rate of return =	1+ nominal rate of return	−1 =	1 + 0	−1 = −0.0566 = −5.66%
	1+ inflation rate		1 + 0.06

b.

Rate of return =	capital gain + dividend	=	($50 − $50) + $4	= 0.08 = 8%
	initial share price		$50

Real rate of return =	1+ nominal rate of return	−1 =	1.08	−1 = 0.0189 = 1.89%
	1+ inflation rate		1.06

  
c.

Rate of return =	capital gain + dividend	=	($55 − $50) + $4	= 0.18 = 18%
	initial share price		$50

Real rate of return =

1+ nominal rate of return

−1 =

1.18

−1 = 0.1132 = 11.32%

A stock is selling today for $20 per share. At the end of the year, it pays a dividend of $2 per share and sells for $23.

A stock is selling today for $20 per share. At the end of the year, it pays a dividend of $2 per share and sells for $23.

a.	What is the total rate of return on the stock?

Rate of return

%

b.	What are the dividend yield and percentage capital gain?

Dividend yield	%
Capital gains yield	%

Explanation:

 a.

Rate of return =	capital gain + dividend	=	($23 − $20) + $2	= 0.25 = 25%
	initial share price		$20

b.

Dividend yield = dividend/initial share price = $2/$20 = 0.10 = 10%

Capital gains yield = capital gain/initial share price = $3/$20 = 0.15 = 15%