Question

(Calculating rates of return) The SBP stock index represents a portfolio comprised of 500 large publicly traded comparies. On December 24,2007 , the index had a value of 1.410 and on December 24,2008 , the index was approximately 890 . If the average dividend poid on the stocks in the index is approximately 4.0 percent of the value of the index at the beginnitg of the yeat, wh Chapter 2 that you can purchase mutual funds that mimic the retums of the index)? The rate of return earned on the S\&P 500 is \%.

Answer 1

The rate of return on the S&P 500 index for 2007-2008, accounting for the change in index value and average dividends paid, is -32.89%.

Step-by-step explanation:

To calculate the rate of return on the S&P stock index for the period between December 24, 2007, and December 24, 2008, we need to account for both the change in index value and dividends paid. We're given an index value of 1,410 at the beginning of the year and an ending value of 890. The average dividend paid is 4% of the beginning index value, which amounts to 1,410 × 0.04 = 56.4. The total loss in index value is 1,410 – 890 = 520. Therefore, the total return including dividends is 890 + 56.4 – 1,410 = -463.6. The rate of return is calculated by dividing the total return by the beginning index value and multiplying by 100 to get a percentage: (-463.6 / 1,410) × 100 = -32.89%. The rate of return for S&P 500 over this period is -32.89%.