# FIN515 week 5 Problem set

Feb 3rd, 2012
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Week 5 Problem Set Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_5_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox. Chapter 10 (pages 345–348): 4. You bought a stock one year ago for \$50 per share and sold it today for \$55 per share. It paid a \$1 per share dividend today. a. What was your realized return? b. How much of the return came from dividend yield and how much came from capital gain? 20. Consider two local banks. Bank A has 100 loans outstanding, each for \$1 million, that it expects will be repaid today. Each loan has a 5% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of \$100 million outstanding, which it also expects will be repaid today. It also has a 5% probability of not being repaid. Explain the di

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Week 5 Problem SetAnswer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_5_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox.Chapter 10 (pages 345-348):4.You bought a stock one year ago for \$50 per share and sold it today for \$55 per share. It paid a \$1 per share dividend today.a. What was your realized return?R = b. How much of the return came from dividend yield and how much came from capital gain?R (Div) = = 0.02 = 2%R (capital Gain) = The realized return on the equity investment is 12%. The dividend yield is 10%20.Consider two local banks. Bank A has 100 loans outstanding, each for \$1 million that it expects will be repaid today. Each loan has a 5% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of \$100 million outstanding, which it also expects will be repaid today. It also has a 5% probability of not being repaid. Explain the difference between the type of risk each bank faces. Which bank faces less risk? Why?The expected payoffs are the same, but bank A is less risky22.Consider the following two, completely separate, economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together-in good times all prices rise tog

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