Question

You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. What is the beginning of year price for each year?

Answer 1

To calculate the beginning of year price for each year, divide the ending price by 1 plus the rate of return. Repeat this calculation for each year using the given rates of return for the risky portfolio.

Step-by-step explanation:

To determine the beginning of year price for each year, we need to use the rates of return for the risky portfolio. The rates of return represent the percentage increase or decrease in the stock value for each year. Assuming the stock pays no dividends, the beginning of year price can be calculated by dividing the ending price by 1 plus the rate of return. For example, if the ending price is $100 and the rate of return is 10%, the beginning of year price would be $100 / (1 + 0.1) = $90.91.

Using this formula, we can calculate the beginning of year price for each year based on the given rates of return for the risky portfolio.

Year 1: Beginning of year price = Ending price / (1 + Rate of return)

Year 2: Beginning of year price = Ending price / (1 + Rate of return)

Continue this calculation for each year using the respective ending price and rate of return.