Problem 2. In late 2010, you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. The price of the stock increased from $12 a share at the time of the purchase to a current level of $45. Notwithstanding the success of the company, competitors are gaining much strength. Further, your analysis indicates that the stocks may be over priced based on your projection of the future earnings growth. Your analysis, however, was the same one year ago and the earnings have continued to increase. Actions that you might take range from an outright sale of the stock (and the payment of the capital gains tax) to doing nothing and continuing to hold the shares. You reflect on these choices as well as other actions that could be taken. Describe the various actions that you might take and their implications.
Chapter 12
Problem 6. Find the real return on the following investments:
STOCK NOMINAL RETURN INFLATION
A 10% 3%
B 15% 8%
C -5% 2%
Problem 8. The Countries of Stabilato and Variato have the following average returns and standard deviations for their stocks, bonds, and shorterm government securities. What range of returns should you expect to earn 95 percent of the time for each asset class if you invested in Stabilato's securities? From investing in Variato's securities?
STABILATO ASSET AVERAGE RETURN STANDARD DEVIATION
Stocks 8% 3%
Bonds 5% 2%
Short-term government debt 35 15
VARAITO ASSET AVERAGE RETURN STANDARD DEVIATION
Stocks 15% 13%
Bonds 10% 8%
Short-term government debt 6% 3%