SHARE RETURNS

Project on stock returns; compare discrete returns with the continuously compounded ones.

Each member of the group is to choose a company in a similar industry and look at the share price for the last 12 months. A table is to be created showing the discrete return comparing it with continuous compounded return over the period and the results are to be compared. Which gives the more accurate return?

Example

Month	Price	Discrete Return %	CTS-Comp Return ln (this mnth/last )
February	10
March	11	+10	+.0953
April	10.50	-4.55	-.0405
May	12.00	+12.5	+.13353
Total		17.95%	+.1833

Monthly return based on discrete return =

Monthly return based on continuously compounded =

Look up on web site and check to see if it has any effect on the share price when it was paid.

Including the dividend in the continuous compounded return

Explain which type of return to use and then plot the returns of the three companies on one graph.

Work out the standard deviation for each company

Standard deviation (Return) =

What does the standard deviation tell us about the stocks?

Developed by Phil Gray.

http://www.maths.uq.edu.au