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BUSN380 Week 4 TCO 4 Problem Set 4 - Calculating Yields, Bond &amp; Book Values, Earnings Per Share

# BUSN380 Week 4 TCO 4 Problem Set 4 - Calculating Yields, Bond & Book Values, Earnings Per Share

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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, Price-Earnings Ratio, and Book Value. As a stockholder in Bozo Oil Company, you receive its annual report. In the

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