Return on A Single Asset for a Period

Tata Motors 100 shares @789.90/share

Total Investment

100x789.90
Rs 78990

Company declares Dividend of Rs 15/share

Total earning from dividend
100x15
Rs1500
At the end of the year share price is Rs1308.35
Therefore Capital Gain
(1308.35-789.90)*100
Rs 51845
Total Return

Dividend+ capital gain

1500+51845
Rs 53345

Return culd be unrealized

However Total cashflow
Div+Earning from sale of shares
1500+(1308.35*100)
Rs 132335
This in other words equals investment+return
78990+53345
Rs 132335
Rate of Return

53345*100/78990

######
Div yield + CGY
Div1/P0 +P1-P0/P0
15*100/789.90 + (1308.35-789.90)*100/789.90
1.89+65.6
######

89.90)*100/789.90

Annual Rate of Return for a Multi Period

Year

Market Price

Capital Gain/Loss %

Dividend

2002

55.21

2003

154.4

179.6

3.5

2004

317.8

105.9

2005

433.6

36.44

2006

464.1

7.03

2007

564.2

21.58

10

2008

561

-0.58

13

2009

680

21.22

20

2010

1092

60.55

22

480.2

53.96

9.72

Mean

Dividend

DY %

Return %

6.339

185.9

2.59

108.5

1.89

38.33

1.38

8.42

2.15

23.74

2.3

1.73

3.57

24.79

3.24

63.78

2.93

56.89

Computation of Variance and Standard Dev

Year

Return %

Rt-E

{(Rt-E}square

2003

185.9

129

16642

2004

108.5

51.56

2659

2005

38.33

-18.56

344.5

2006

8.42

-48.47

2350

2007

23.74

-33.15

1099

2008

1.73

-55.16

3043

2009

24.79

-32.1

1031

2010

63.78

6.89

47.48

Avg Return

56.89
Sum
27215
Variance 3888
s.d.
0.6235 or 62.35%

ance and Standard Deviation from Returns

or 62.35%

Expected Rate of Return and Risk using Probabilities

Assumptions

XYZ Company CMP Rs 100

Div/shareRs 5
Holding period
one year

Four Stages
Stage

Price

Dividend Div Yield

High Growth

140

Growth

120

Static

100

80

Recession

So XYZ Company has an expected rate of return of 15.5%

Calculation of Risk
Return in Stages Assumed
12

R-E
-3.5

{R-E}square
12.25

6.75

-8.75

75.563

1.25

-14.25

203.06

-4.5

-20

400
Variance
s.d.

Since expected return is more than s.d. this stock is sound investment option

isk using Probabilities

Capital Gain

Return

Probability

Expected Return

40

48

0.25

12

20

27

0.25

6.75

0.25

1.25

-20

-18

0.25

-4.5
15.5

{R-E}square

ment option

{R-E}sqr*pi
3.0625
19.141
50.766
100
172.97
13.15