Chapter 10 Notes & Questions. Return on Investment. In nominal terms: Total dollar return = Dividend income + Capital gain (or loss) Total cash if stock is sold = Initial investment + Total return. Return on Investment. In percentage terms: Dividend yield = D t+1 / P t
In nominal terms:
In percentage terms:
Arithmetic average = “the return in an average year over a particular period”.
Arithmetic and Geometric Returns. A stock has had the following year-end prices and dividends:
What are the arithmetic and geometric returns for the stock?
Calculating Returns. Refer to Table 10.1 in the text and look at the period from 1973 through 1980.
Using Probability Distributions. Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Based on the historical record, use the NORMDIST function in Excel to answer the following questions: