Pick a stock and collect its annual stock prices and dividend payments for the past 3 years (2018-2020).Given the stock prices and dividends, compute 3 annual holding period returns (HPRs).Then, use these HPRs to compute its average return and standard deviation.In addition, with the price and dividends, compute its annual internal rate of return (IRR) for the past 3 years.

Compare your results to the market.The market, with S&P 500 Index as proxy, had the average annual return of 10.06%, the standard deviation of 12.56%, and the IRR of 9.57% in the past 3 years.The detail computation for the market is attached.

To find historical prices and dividends for the stock you choose, can go to finance.yahoo.com.After you put in the ticker, you click on the "Historical Data" on the top. then choose the monthly prices to get the prices (Close Price) and dividends you need.

An Example: Walmart (WMT) Return and Risk

First, find the historical prices for WMT on yahoo finance

1/1/18: $106.60

1/1/19: $95.83

1/1/20: $114.49

1/1/21: $140.49

Next find annual dividends also from yahoo finance

2018: $0.52 * 4 = $2.08

2019: $0.53 * 4 = $2.12

2020: $0.54 * 4 = $2.16

Compute the Holding Period Return (HPR) for each year

2018 HPR = (2.08 + 95.83 - 106.60) / 106.60 = -8.15%

2019 HPR = (2.12 + 114.49 - 95.83) / 95.83 = 21.68%

2020 HPR = (2.16 + 140.49 - 114.49) / 114.49 = 24.60%

Average HPR = (- 8.15% + 21.68% + 24.60%) / 3 = 12.71%

HPR Variance = (-8.15% - 12.71%)² + (21.68% - 12.71%)² + (24.60% - 12.71%)²] / (3-1) = 0.0329

SD = (0.0329)^0.5 = 18.13%

Over the past 3 years, Walmart has the average annual holding period return of 12.71%, with the standard deviation of 18.13%.

Next, to compute the IRR, we need the following.

The historical prices for WMT on yahoo finance

1/1/18: $106.60

1/1/21: $140.49

(We need the beginning price and ending price to compute IRR)

We also need the annual dividends.

2018: $0.52 * 4 = $2.08

2019: $0.53 * 4 = $2.12

2020: $0.54 * 4 = $2.16

Compute the IRR given the following cash flows

CF0 = -106.60

C01 = 2.08

C02 = 2.12

C03 = 2.16 + 140.49

• IRR = 11.46%

Over the past 3 years, Walmart had the annual Internal Rate of Return (IRR) of 11.46%.

You can also find the computation in the attached Excel spreadsheet.

Then, we compare the results to the market.We find the following.

WMT's annual return of 12.71% is higher than the market's return of 10.06%.

WMT's standard deviation of 18.13% is higher than the market's standard deviation of 12.56%.

WMT's IRR of 11.46% is also higher than the market's IRR of 9.57%.

Answer rating: 100% (QA)

Sure lets walk through this step by step for a hypothetical stock lets call it XYZ using the given m... View the full answer