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Solutions: Problem Set 4
1.
Determining Profit or Loss from an Investment.
Three years ago, you
purchased 150 shares of IBM stock for $88 a share.
Today, you sold
your IBM stock for $103 a share.
For this problem, ignore commissions that would be charged to buy and sell
your IBM shares.
a
.
What is the amount of profit you earned on each share of IBM stock?
Ans.
$103 – $88 =
$15
b
.
What is the total amount of profit for your IBM investment?
Ans.
$15 x $150 =
$2250
2.
Calculating Rate of Return. Assume that at the beginning of the year, you
purchase an investment for $8,000 that pays $100 annual income. Also assume
the investment’s value has decreased to $7,400 by the end of the year.
a.
What is the rate of return for this investment?
Ans.
$7400  $8000 = (600)
(600) + 100 = (500)
(500) ÷ 8000 = 0.0625
Rate of return = 6.25%
b.
Is the rate of return a positive or negative number?
Negative
3.
Calculating Earnings Per Share, PriceEarnings Ratio, and Book Value. As a
stockholder in Bozo Oil Company, you receive its annual report. In the
financial statements, the firm has reported assets of $9 million, liabilities of
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This note was uploaded on 05/27/2011 for the course BUSN 380 taught by Professor Bloch during the Fall '10 term at DeVry NY.
 Fall '10
 Bloch
 Earnings Per Share

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