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483midtermFall04-1

# 483midtermFall04-1 - University of Washington Department of...

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University of Washington Fall 2004 Department of Economics Eric Zivot Economics 483 Midterm Exam This is a closed book and closed note exam. However, you are allowed one page of notes (double-sided). Answer all questions and write all answers in a blue book or on separate sheets of paper. Time limit is 1 hours and 20 minutes. Total points = 110. I. Return Calculations (30 pts, 5 points each) 1. Consider a one month investment in two Northwest stocks: Amazon and Costco. Suppose you buy Amazon and Costco at the end of September at , 1 , 1 \$38.23, \$41.11 A t C t P P = = and then sell at the end of the October for , , \$41.29, \$41.74 A t C t P P = = . (Note: these are actual closing prices for 2004 taken from Yahoo!) a. What are the simple monthly returns for the two stocks? b. What are the continuously compounded returns for the two stocks? c. Suppose Costco paid a \$0.10 per share cash dividend at the end of October. What is the monthly simple total return on Costco? What is the monthly dividend yield? d. Suppose the monthly returns on Amazon and Costco from question (a) above are the same every month for 1 year. Compute the simple annual returns as well as the continuously compounded annual returns for the two stocks. e. At the end of September, 2004, suppose you have \$10,000 to invest in Amazon and Costco over the next month. If you invest \$8000 in Amazon and \$2000 in Costco, what are your portfolio shares, x A and x C .

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