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# 4-year holding period yield

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Suppose it is now Jan. 1, 2007, and you just sold an investment that you own for \$12,500. You purchased the investment 4 years ago for \$10,500. During the time you held the investment, it paid income equal to \$1,000 each year. What is the 4-year holding period yield that you earned on your investment?

https://brainmass.com/economics/investments/4-year-holding-period-yield-99124

#### Solution Preview

Suppose it is now Jan. 1, 2007, and you just sold an investment that you own for \$12,500. You purchased the investment 4 years ago for \$10,500. During the time you held the investment, it paid income equal to \$1,000 ...

#### Solution Summary

This solution is comprised of a detailed explanation and calculation to find the 4-year holding period yield that investor earned on investment.

\$2.19

i) Find the current price of 30 day commercial paper issued with a yield of 1.25% and with face value of \$100,000.

ii) Danny purchases a newly issued 4 year bond priced at \$1015 with par value of \$1000. It pays \$100 interest yearly. What is the coupon rate, the current yield and the yield to maturity?

iii) Danny also purchases a share of General Electric stock for \$14 at the beginning of the year. During the course of the year he receives dividends totaling \$1.15. He sells the stock to juilet for \$16.75 at the end of the year. What is his holding period return?

iv) juilet buys the stock at \$16.75 from Danny. Using the current dividend (now time = 0) of \$1.15 and a predicted growth rate of 3%, what is GE's required rate of return, r?

v) Instead, just as juilet purchases the stock, GE announces that it will be distributing all of its earnings in the form of a dividend (i.e. retaining no earnings). The dividend announced is \$2.00. What is the price of the stock now (assume the required rate of return did not change from part iii)?

i) Is it true that \$1 today is worth more to you than \$1 in one year. Please explain

ii) What is the real future value of \$10,000 which will sit in a savings account for 20 years, earning 4% interest compounded yearly during a period of 4% annual inflation?

iii) What is the present value of an annuity which makes its first payment in 3 years, makes a total of 10 payments of \$10,000 each year with an overall discount rate of 7%?

iv) What is the PV of a perpetuity which pays \$200 one year from today and then each year thereafter? Assume a discount rate of 8%.

v) What is the nominal future value of \$10,000 one year from today if it can be invested in a portfolio that expects to earn, in real terms, 4% per year with inflation of 3% per year?

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