Essentials of Investments Chapter 4 Solutions

# Essentials of Investments Chapter 4 Solutions - Essentials...

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Essentials of Investments (BKM 7 th Ed.) Answers to Selected Problems – Lecture 4 Note: The solution to the concept check is provided in the text. Chapter 5 : 14b. Time Cash flow Explanation 0 –300 Purchase of three shares at \$100 each. 1 –208 Purchase of two shares at \$110 less dividend income on three shares held. 2 110 Dividends on five shares plus sale of one share at price of \$90 each. 3 396 Dividends on four shares plus sale of four shares at price of \$95 each. +110 +396 | | | | Date: 1/1/96 1/1/97 1/1/98 1/1/99 | | | | -300 -208 The Dollar-weighted return can be determined by doing an internal rate of return (IRR) calculation. In other words, set the present value of the outflows equal to the present value of the inflows (or the net present value to zero): % 1661 . 0 001661 . 0 ) 1 ( 396 ) 1 ( 110 ) 1 ( 208 300 3 2 1 = = + + + = + + R R R R Chapter 18 : 5. We need to distinguish between timing and selection abilities. The intercept of the scatter diagram is a measure of stock selection ability. If the manager tends to have a positive

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## This note was uploaded on 06/23/2009 for the course FIN FIN420 taught by Professor Alial-elg during the Spring '09 term at King Fahd University of Petroleum & Minerals.

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Essentials of Investments Chapter 4 Solutions - Essentials...

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