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What is the expected return on a stock that pays a 4 percent annual dividend and whose price is expected to appreciate annually at 6 percent?
- What is the expected return on a stock that pays a 4 percent annual dividend and whose price is expected to appreciate annually at 6 percent?
4%
6%
10%
14%
2. What is the expected return on a portfolio consisting of an equal amount invested in each stock?
Stock Expected Return
A 15%
B 10
C 22
D 14
12.25%
15.25%
17.25%
19.25%
Stock Expected Return
A 15%
B 10
C 22
D 14
What is the expected return on the portfolio if 50 percent of the funds are invested in stock C, 30 percent in stock A, and 20 percent in Stock D?
12.30%
14.30%
16.30%
18.30%
Reinvestment rate risk refers to fluctuations in
rates earned when funds are reinvested
a stock's price
a stock's dividend
the cost of an investment
Sources of risk include
1. fluctuating exchange rates
2. a firm's financing decisions
3. higher interest rates
4. loss of purchasing power
1 and 2
2 and 3
2, 3, and 4
1, 2, 3, and 4
6.For diversification to reduce risk,
the returns on the individual securities should be highly correlated
the prices of the stocks should be stable
one firm should offer dividends and the other should offer capital gains
the returns on the individual securities should be negatively correlated
