econ424lab1spring2015 - ECON 424 Lab 1 Spring 2015 Due...

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ECON 424 Lab 1 Spring 2015 Due: Tuesday, April 7 at 8pm via Canvas Part I: Return calculations Consider the following (actual) monthly adjusted closing price data for Starbucks stock over the period December 2004 through December 2005 End of Month Price Data for Starbucks Stock December, 2004 $31.18 January, 2005 $27.00 February, 2005 $25.91 March, 2005 $25.83 April, 2005 $24.76 May, 2005 $27.40 June, 2005 $25.83 July, 2005 $26.27 August, 2005 $24.51 September, 2005 $25.05 October, 2005 $28.28 November, 2005 $30.45 December, 2005 $30.51 1. Using the data in the table, what is the simple monthly return between the end of December, 2004 and the end of January 2005? If you invested $10,000 in Starbucks at the end of December 2004, how much would the investment be worth at the end of January 2005? 2. Using the data in the table, what is the continuously compounded monthly return between December, 2004 and January 2005? Convert 1
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this continuously compounded return to a simple return (you should get the same answer as in part a). 3. Assuming that the simple monthly return you computed in part (1) is the same for 12 months, what is the annual return with monthly compounding? 4. Assuming that the continuously compounded monthly return you com- puted in part (2) is the same for 12 months, what is the continuously compounded annual return? 5. Using the data in the table, compute the actual simple annual return between December 2004 and December 2005. If you invested $10,000 in Starbucks at the end of December 2004, how much would the in- vestment be worth at the end of December 2005? Compare with your result in part (3).
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