investments ch 2 answers - Essentials of Investments (BKM...

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Essentials of Investments (BKM 7 th Ed.) Answers to Suggested Problems – Lecture 1 Chapter 2: 8. a. At t = 0, the value of the index is: (90 + 50 + 100)/3 = 80 At t = 1, the value of the index is: (95 + 45 + 110)/3 = 83.3333 The rate of return is: (83.3333/80) – 1 = 4.167% b. In the absence of a split, stock C would sell for 110, and the value of the index would be: (95 + 45 + 110)/3 = 83.3333 After the split, stock C sells at 55. Therefore, we need to set the divisor (D) such that: 83.3333 = (95 + 45 + 55)/D or D = 2.340 c. The rate of return is zero. The index remains unchanged, as it should, since the return on each stock equals zero. 9. a. Total market value at t = 0 is: (9,000 + 10,000 + 20,000) = 39,000 Total market value at t = 1 is: (9,500 + 9,000 + 22,000) = 40,500 The return on the value-weighted index equals: (40,500/39,000) – 1 = 3.85% b. The return on each stock is as follows: R a = (95/90) – 1 = 0.0556 R b = (45/50) – 1 = –0.10 R c = (110/100) – 1 = 0.10 The return on the equally-weighted index equals: [0.0556 + (-0.10) + 0.10]/3 = 0.0185 = 1.85% 10. The after-tax yield on the corporate bonds is: [0.09 x (1 – 0.30)] = 0.0630 = 6.30% Therefore, municipal bonds must offer a yield of at least 6.30%. 12. The equivalent taxable yield (r) is: r = r m /(1 – t) a. 4.00% b. 4.44% c. 5.00% d. 5.71%
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Chapter 3 : 1. a.
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This note was uploaded on 11/23/2010 for the course FINANCE 08FB40447 taught by Professor Raymond during the Spring '10 term at University of Manchester.

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investments ch 2 answers - Essentials of Investments (BKM...

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