Suppose you purchase one share of the stock of cereal

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34. Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend, and buy one more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share), and sell the shares for $67.20 each. The time-weighted return on your investment is __________. A. 10.00% B. 8.78% C. 19.71% D. 20.36% E. none of the above Year 1: ($72 + $1 - $50)/$50 = 46%; Year 2: ($67.20 + $1 - $72)/$72 = -5.28%; Average: 20.36%. Difficulty: Moderate 24-20
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Chapter 24 - Portfolio Performance Evaluation 35. Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend, and buy one more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share), and sell the shares for $67.20 each. The dollar-weighted return on your investment is __________. $50 + $72 /(1 + r) = $1/(1 + r) + $2/(1 + r)2 + $134.40/(1 + r)2; r = 8.78%. Difficulty: Moderate 36. Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. __________ has the higher arithmetic average return. A: (2% + 18%)/2 = 10%; B: (9% + 11%)/2 = 10%. Difficulty: Moderate 24-21
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Chapter 24 - Portfolio Performance Evaluation 37. Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. Which stock has the higher geometric average return? A: [(1.02)(1.18)] 1/2 - 1 = 9.71%; B: [(1.09)(1.11)] 1/2 - 1 = 10.00%. Difficulty: Moderate The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: The risk-free return during the sample period was 3%. 38. What is the Sharpe measure of performance evaluation for Sooner Stock Fund? A. 1.33% B. 4.00% C. 8.67% D. 38.6% E. 37.14% (20% - 3%)/44% = 0.386, or 38.6%. Difficulty: Moderate 24-22
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Chapter 24 - Portfolio Performance Evaluation 39. What is the Treynor measure of performance evaluation for Sooner Stock Fund? (20% - 3%)/1.8 = 9.44%. Difficulty: Moderate
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