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CH 1 Practice Problems

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20 views

CH 1 Practice Problems

Uploaded by

Robert Irons
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 1 Practice Problems

FIS 309
Dr. Irons
On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the dollar return you earned over the holding


period?
On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the dollar return you earned during the holding


period?

(20.14 – 18.70 + 0.24) × 400 = $672.00


On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the dividend yield you earned over the holding


period?
On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the dividend yield you earned over the holding


period?

0.24 ÷ 18.70 = 0.01283 or 1.28%


On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the capital gains yield you earned over the holding
period?
On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the capital gains yield you earned over the holding
period?

(20.14 – 18.70) ÷ 18.70 = .07701 or 7.70%


On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the total yield you earned over the holding period?
On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the total yield you earned over the holding period?

1.28% + 7.70% = 8.98%


Or
(20.14 – 18.70 + 0.24) ÷ 18.70 = .08984 or 8.98%
On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the annualized yield for the investment?


On 6/2/2019 you purchased 400 shares of Humperdinck
Inc. common stock for $18.70 per share, and on 12/2/2019
you sold the shares for $20.14 per share. During the
holding period you collected a $0.24 dividend per share.

What is the annualized yield for the investment?

EAR = (1 + HPR)m – 1 = 1.08982 – 1 = 0.18766 or 18.77%


The following table represents the year end closing price
for Megalo Manufacturing’s common stock for the past five
years.
Year Closing Price
2015 $30.20
2016 $32.15
2017 $33.72
2018 $32.79
2019 $35.30

Calculate the annual returns for 2016-2019. Assume no


dividends were paid.
The following table represents the year end closing price
for Megalo Manufacturing’s common stock for the past five
years.
Year Closing Return
Price
2015 $30.20
2016 $32.15 (32.15/30.20) – 1 = 6.46%
2017 $33.72 (33.72/32.15) – 1 = 4.88%
2018 $32.79 (32.79/33.72) – 1 = -2.76%
2019 $35.30 (35.30/32.79) – 1 = 7.65%

Calculate the annual returns for 2016-2019. Assume no


dividends were paid.
The following table represents the year end closing price
for Megalo Manufacturing’s common stock for the past five
years.
Yea Closing Return
r Price
201 $30.20
5
201 $32.15 6.46%
6
201 $33.72 4.88%
7
201 $32.79 -2.76%
Calculate
8 the arithmetic mean annual return for 2016-
2019.
201 $35.30 7.65%
9
The following table represents the year end closing price for
Megalo Manufacturing’s common stock for the past five years.

Yea Closing Return


r Price
201 $30.20
5
201 $32.15 6.46%
6
201 $33.72 4.88%
7
Calculate the arithmetic mean annual return for 2016-2019.
201 $32.79 -2.76%
(6.46
8 + 4.88 – 2.76 + 7.65) ÷ 4 = 16.23 ÷ 4 = 4.0575 or
4.06%
201 $35.30 7.65%
9
The following table represents the year end closing price
for Megalo Manufacturing’s common stock for the past five
years.
Yea Closing Return
r Price
201 $30.20
5
201 $32.15 6.46%
6
201 $33.72 4.88%
7
201 $32.79 -2.76%
Calculate
8 the geometric mean annual return for 2016-
2019.
201 $35.30 7.65%
9
The following table represents the year end closing price for
Megalo Manufacturing’s common stock for the past five
years.
Yea Closing Return
r Price
201 $30.20
5
201 $32.15 6.46%
6
201 $33.72 4.88%
7
201 $32.79 -2.76%
Calculate
8 the geometric mean annual return for 2016-2019.
(1.0646
201 ×$35.30
1.0488 × 0.9724
7.65%× 1.0765)^(1/4) – 1
9
1.1687944^(1/4) – 1 = .03976 or 3.98%
The following table represents the year end closing price for
Megalo Manufacturing’s common stock for the past five years.

Yea Closing Return


r Price
201 $30.20
5
201 $32.15 6.46%
6
201 $33.72 4.88%
7
Calculate the geometric mean annual return for 2016-2019.
201 $32.79 -2.76%
An8alternative way to calculate the geometric mean from
prices
201 $35.30 7.65%
(35.30
9 ÷ 30.20)^(1/4) – 1 = 3.98%
For the period 2000-2019 Sedgewick Inc.’s common stock
has a mean annual return of 8.25% and a standard deviation
of annual returns of 4.60%. Assuming the returns are
normally distributed, we can estimate that, during this
period, 95% of the time Sedgewick’s returns were between
what two percentages?
For the period 2000-2019 Sedgewick Inc.’s common stock
has a mean annual return of 8.25% and a standard deviation
of annual returns of 4.60%. Assuming the returns are
normally distributed, we can estimate that, during this
period, 95% of the time Sedgewick’s returns were between
what two percentages?

95% confidence interval extends 2 standard deviations from


the mean
8.25 – 2(4.60) = -1.07
8.25 + 2(4.60) = 17.57
95% of the time the returns should be between -1.07% and
17.57%
An investment has an expected return of 12% per year
with a standard deviation of 6%. Assuming the returns
are normally distributed, how frequently do you expect to
lose money?
An investment has an expected return of 12% per year
with a standard deviation of 6%. Assuming the returns
are normally distributed, how frequently do you expect to
lose money?

You lose money if you have a negative return.


With a 12 percent expected return and a 6 percent
standard deviation, a zero return is two standard
deviations below the average.
The odds of being outside (above or below) two standard
deviations are roughly 5%; the odds of being below are
half that, or 2.5%
You should expect to lose money only 2.5 years out of
every 100.

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