Calculation of the 5-Year Rates of Return for the Securities
Formula
To get the five-year rates of return for each of the securities, historical stock price information for the previous five years for each business must be collected. The percentage change in stock price over that time must also be determined. To get the previous stock prices for each company, 10-K Annual Reporting information was used.
Five-year rates of return can be determined by using the following formula:
Rate of return = [(Ending price – Beginning price + Dividends)/Beginning price] x 100%, where ending price = the current price, beginning price = the price five years ago, dividends = the total dividends paid over the five-year period.
Calculation
Based on this, Apple Inc.’s current price was 411$, and the beginning price 100$, including the dividends (Apple Inc., 2022). Thus, the company’s rate of return is 311%. Similarly, the current and beginning prices for Caterpillar were 253.90$ and 100$, respectively (Caterpillar, 2021). As a result, the return rate is 154%.
Next, in 2022, the return rate for Consolidated Edison was 16% (conEdison, 2022). Meanwhile, the return rate of Northern Trust was calculated as 7.25% (Northern Trust Corporation,2022). Finally, the computed return rate for Macy’s Inc. is 4.6% (Macy’s Inc., 2023). The industry, company model, financial performance, market circumstances, and investor mood are only a few of the variables that affect each security’s risk/return relationship.
The Risk/Return Relationship for the Securities
Apple, Inc.
Technology corporation Apple, Inc. (AAPL) is renowned for its cutting-edge goods and services. Over the previous five years, the stock has returned roughly 311%, reflecting the company’s outstanding financial performance, growth potential, and investor confidence in its ability to create value (Apple Inc., 2022). However, due to the industry’s rapid change and the possibility of disruptive technologies that might affect the company’s market position, investing in technology companies like Apple carries a higher level of risk.
Caterpillar
An international producer of mining and construction machinery is Caterpillar (CAT). Due to a combination of factors, including a global economic slump, geopolitical risks, and commodity price fluctuations, the company’s stock has achieved a lower rate of return of 154% during the preceding five years. Because of the cyclical nature of Caterpillar’s sector, the company is vulnerable to a variety of hazards that might harm its financial performance and stock price. Supply chain interruptions, regulatory changes, and economic downturns are among the hazards.
Consolidated Edison
Consolidated Edison (ED) is a utility corporation that serves clients in the Northeastern United States with electricity, gas, and steam. As a result of the regulated structure of the utility business and restricted development prospects, the company’s stock has provided a mediocre rate of return of 16% over the last five years. Investing in utility stocks like Consolidated Edison is regarded as less hazardous owing to the business’s stability and predictability, but it may also yield lesser profits when compared to other industries.
Northern Trust
Northern Trust (NTRS) is a financial services firm that provides institutional and individual clients with investment management, asset servicing, and banking solutions. Over the last five years, the stock has returned 7.25%, showing the company’s solid financial performance, rising client base, and favorable market circumstances. However, investing in financial companies like Northern Trust entails risks such as regulatory changes, market volatility, and interest rate variations, all of which can have an influence on the company’s financial performance and stock price.
Macy’s
Macy’s (M) is a department store company that runs Macy’s and Bloomingdale’s shops. Due to many issues encountered by the retail business, such as the trend toward online shopping, changing customer tastes, and rising competition, the company’s stock has provided the lowest rate of return of 4.6% over the last five years. Macy’s operation is also strongly dependent on macroeconomic conditions and customer spending, both of which can influence its financial success and stock price. Investing in retail companies, such as Macy’s, has a greater level of risk owing to the industry’s volatility and sensitivity to changes in consumer behavior and economic situations.
References
Apple Inc. (2022). Form 10-K. Web.
Caterpillar. (2021). Form 10-K. Web.
conEdison. (2022). 2022 Annual Report. Web.
Northern Trust Corporation. (2022). Form 10-K. Web.
Macy’s Inc. (2023). Form 10-K. Web.