Question

Suppose a stock had an initial price of $52 per share, paid a dividend of $1.00 per share during the year, and had an ending share price of $62. What was the dividend yield and the capital gains yield? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Consider the following information: a. Your portfolio is invested 26 percent each in A and C, and 48 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

1. Dividend yield: 1.92%, Capital gains yield: 19.2%. 2. Expected return depends on the expected returns of A, B, and C. 3. Portfolio weights: A-26%, B-48%, C-26%. 4. Variance calculation requires individual variances and correlation coefficients. 5. Standard deviation calculation requires the variance of the portfolio.

1. To calculate the dividend yield, we divide the annual dividend per share by the initial share price. In this case, the dividend per share is $1.00 and the initial price is $52. So, the dividend yield is 1.00/52 = 0.019 or 1.92%.

2. The capital gains yield is calculated by subtracting the initial share price from the ending share price, and then dividing the result by the initial share price. In this case, the initial price is $52 and the ending price is $62. So, the capital gains yield is (62-52)/52 = 0.192 or 19.2%.

Moving on to the portfolio calculations:

3. The portfolio is invested 26% each in A and C, and 48% in B. We need to calculate the expected return of the portfolio.

4. To calculate the expected return, we multiply the weight of each investment by its respective expected return, and then sum up the results. Let's assume the expected returns for A, B, and C are rA, rB, and rC respectively.

The expected return of the portfolio is:
(0.26 * rA) + (0.26 * rC) + (0.48 * rB)

5. Now let's move on to calculating the variance of the portfolio.

6. The variance measures the spread between the actual returns and the expected return of the portfolio. To calculate the variance, we need the individual weights and variances of each investment, as well as the correlation coefficients between the investments.

Finally, the standard deviation is the square root of the variance. We calculate the standard deviation to understand the level of risk associated with the portfolio.