(Calculating rates of return) The S&P stock index represents a portfolio comprised of 500 large publicly traded companies. On December 24, 2007, the index had a value of 1,410 and on December 24, 2008, the index was approximately 925.
If the average dividend paid on the stocks in the index is approximately 4.5 percent of the value of the index at the beginning of the year, what is the rate of return earned on the S&P index?
What is your assessment of the relative riskiness of investing in a single stock such as Google compared to investing in the S&P index?
A) The rate of return earned on the S&P 500 is ? (Round to two decimal places.)
B) What is your assessment of the relative riskiness of investing in a single stock, such as Google, compared to investing in the S&P index? (Select the best choice below.)
A. In general, investing in the S&P index is riskier than investing in a single stock.
B. In general, investing in a single stock is riskier than investing in the S&P index.
C. There is not enough information given to answer this question.
D. In general, investing in a single stock has the same relative riskiness as investing in the S&P index.
Return on stock index:
The return on a stock index is composed of returns on constituent stocks and the dividends paid out. The returns may be capital gain/loss adjusted for total dividend yield on the index.
Answer and Explanation: 1
Total return=(End index value-Beginning index value+Dividends paid)/Beginning index value
End index value=925
Beginning index value=1410
See full answer below.
Become a member and unlock all Study Answers
Start today. Try it nowCreate an account
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 6 / Lesson 11
Learn what the holding period return (HPR) of an investment is and how to calculate it using the holding period return formula. Also, learn how to calculate the annualized HPR and the holding period return for periodic payments.