Question 11.11

11.11 Returns on common stocks. The total return on a stock is the change in its market price plus any dividend payments made. Total return is usually expressed as a percentage of the beginning price. Figure 11.13 is a histogram of the distribution of total returns for all 1528 common stocks listed on the New York Stock Exchange in one year.

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Figure 11.13: Figure 11.13 The distribution of total returns for all New York Stock Exchange common stocks in one year, Exercise 11.11. (Data from J. K. Ford, “Diversification: How Many Stocks Will Suffice?” American Association of Individual Investors Journal, January 1990, pp. 14–16.)

  1. (a) Describe the overall shape of the distribution of total returns.

  2. (b) What is the approximate center of this distribution? Approximately what were the smallest and largest total returns? (This describes the variability of the distribution.)

  3. (c) A return less than zero means that owners of the stock lost money. About what percentage of all stocks lost money?

  4. (d) Explain why we prefer a histogram to a stemplot for describing the returns on 1528 common stocks.