Please see attached file.
2. An investor bought 100 shares of Venus Corporation common stock 1 year ago
for $40 per share. She just sold the shares for $44 each, and during the year,
she received four quarterly dividend checks for $40 each. She expects the
price of the Venus shares to fall to about $38 over the next year. Calculate the
investor's realized percentage holding period return.
4. Suppose a Midwest Telephone and Telegraph (MTT) Company bond,
maturing in 1 year, can be purchased today for $975. Assuming that the
bond is held until maturity, the investor will receive $1,000 (principal) plus
6 percent interest (that is, 0.06 3 $1,000 5 $60). Determine the percentage
holding period return on this investment.
5. a. National Telephone and Telegraph (NTT) Company common stock
currently sells for $60 per share. NTT is expected to pay a $4 dividend
during the coming year, and the price of the stock is expected to increase
to $65 a year from now. Determine the expected (ex-ante) percentage
holding period return on NTT common stock.
b. Suppose that 1 year later, NTT's common stock is selling for $75 per
share. During the 1-year period, NTT paid a $4 common stock dividend.
Determine the realized (ex-post) percentage holding period return on
NTT common stock.
c. Repeat (b) given that NTT's common stock is selling for $58 1 year later.
d. Repeat (b) given that NTT's common stock is selling for $50 1 year later.
10. Assume it is early 2003 and the following bond quotations appeared in the
Wall Street Journal:
ConocoPhillips (COP) 5.900 Oct 15, 2032 95.972 6.200 90 30 88,510
Amerada Hess (AHC) 7.125 Mar 15, 2033 100.145 7.113 179 30 55,000
a. How much in annual interest payment would an investor in each of these
b. How much would you have to pay to buy one COP bond at the last price
c. Why do you think the yield-to-maturity on the AHC bond is higher than the
yield to maturity on the COP bond?
2. The holding period return (HPR) is calculated by taking the value of the asset at some future date (presumably the sale date) (PV) and adding dividends or other yields (D) and subtracting the initial investment (IV) and dividing the sum by the initial investment (IV) such that:
For this problem, it is said that the shares were sold for $44 each, so PV=$44
For this problem, it is said that the shares were initially purchased for $40 each, so IV=$40
For this problem, it is said that four quarterly dividend checks for $40 each were paid. $40*4=$160 in dividends. Remember, however, that the dividends were paid for 100 shares. We want the yield per share. So $160/100=$1.60 total dividend per share.
Using these numbers we ...
The solution calculates the percentage holding return for several situations.