Fall 2011 ADMS 3531 Assignment1 Sol

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price of \$12.34, should be rounded to the nearest cent. However, if there are no pennies, such as 100 shares worth \$12 per share, then use integer dollar amounts. 1. You have the following information regarding recently liquidated 4 investments: Investment Quantity Purchase Price Holding Period Income Sale Price Holding Period Stock A 150 \$27.50 \$0.40 \$28.75 6 months Stock B 80 \$5.25 \$0.10 \$5.35 13 weeks Bond C 20 \$1003.50 \$65.00 \$1010.25 2 years Bond D 10 \$985.25 \$57.50 \$980.00 365 days (a) What is the holding period percentage return (HPR) for each of these investments? (4 marks) Stock A HPR=(28.75+0.40)/ 27.5 – 1 = 6% Stock B HPR=(5.35+0.10)/ 5.25 – 1 = 3.81% Bond C HPR=(1010.25+65)/1003.50 – 1 = 7.15% Bond D HPR=(980+57.50)/985.25 – 1 = 5.3% (b) Determine the effective annual rate (EAR) for each of the investments. (4 marks) Stock A EAR=(1.06)^2 -1= 12.4% Stock B EAR =(1.0381)^4– 1 =16.1% Bond C EAR =(1.03715)^0.5– 1 =3.5% Bond D EAR =(1.053)^1– 1 =5.31%
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