Investment problems and analysis
Not what you're looking for?
See the attached file.
Problem #1
Suppose you bought 100 shares of stock at an initial price of $73 per share. The stock paid a dividend of $0.88 per share during the following year, and the share price at the end of the year was $82.
Compute your total dollar return on this investment.
Does your answer change if you keep the stock instead of selling it? Why or why not?
Problem #2
Looking back at Problem 12, suppose the call money rate is 6% and your broker charges you a spread of 1.25% over this rate. You hold the stock for six months and sell at a price of $53 per share. The company paid a dividend of $.25 per share the day before you sold your stock. What is your total dollar return from this investment? What is your effective annual rate of return?
Problem #3
You purchase 10 call option contracts with a strike price of $75 and a premium of $4.05. If the stock price at expiration is $83.61,
what is your dollar profit?
What if the stock price is $69.56?
Problem #4
You are going to invest in a stock mutual fund with a 5% front- end load and a 1.30% expense ratio. You also can invest in a money market mutual fund with a 5.2% return and an expense ratio of .20%.
If you plan to keep your investment for two years, what annual return must the stock mutual fund earn to exceed an investment in the money market fund?
What if your investment horizon is 10 years?
Purchase this Solution
Solution Summary
Solution discusses the Investment problems
Solution Preview
Problem #1
Suppose you bought 100 shares of stock at an initial price of $73 per share. The stock paid a dividend of $0.88 per share during the following year, and the share price at the end of the year was $82.
Compute your total dollar return on this investment.
=Closing price of share +Dividend-Initial price
=82+0.88-73
=$9.88 per share
Does your answer change if you keep the stock instead of selling it? Why or why not?
No the answer doesn't change but then it will be notional return.
Problem #2
Looking back at Problem 12, suppose the call money rate ...
Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.