Investment Analysis Questions

  1. On February 1, you bought 100 shares of stock in the Francesca Corporation for $33 a share and a year later you sold it for $36 a share. During the year, you received a cash dividend of $1.60 a share. Compute your HPR and HPY on this Francesca stock investment. Round your answer for HPR to three decimal places. Round your answer for HPY to one decimal place.
  2. On August 15, you purchased 80 shares of stock in the Cara Cotton Company at $45 a share and a year later you sold it for $40 a share. During the year, you received dividends of $3.80 a share. Compute your HPR and HPY on your investment in Cara Cotton. Use a minus sign to enter negative values, if any. Round your answer for HPR to three decimal places. Round your answer for HPY to one decimal place.
  3. At the beginning of last year, you invested $3,600 in 80 shares of the Chang Corporation. During the year, Chang paid dividends of $4 per share. At the end of the year, you sold the 80 shares for $57 a share. Compute your total HPY on these shares and indicate how much was due to the price change and how much was due to the dividend income. Do not round intermediate calculations. Round your answers to one decimal place.
  4. Compute the real rates of return for the following situations assuming that the inflation rate is 3 percent. Compute the real rates of return if the rate of inflation was 6 percent. Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to one decimal places.
    1. On February 1, you bought 120 shares of stock in the Francesca Corporation for $29 a share and a year later you sold it for $32 a share. During the year, you received a cash dividend of $1.50 a share. What are the Real rates of return at 3% and 6%:
    2. On August 15, you purchased 110 shares of stock in the Cara Cotton Company at $41 a share and a year later you sold it for $37 a share. During the year, you received dividends of $3.90 a share. What are the real rates of return at 3% and 6%:
    3. At the beginning of last year, you invested $3,850 in 70 shares of the Chang Corporation. During the year, Chang paid dividends of $7.00 per share. At the end of the year, you sold the 70 shares for $62 a share. What are the real rates of return at 3%:
  5. During the past five years, you owned two stocks that had the following annual rates of return:
Year Stock T Stock B
1 0.15 0.07
2 0.11 0.06
3 -0.14 -0.08
4 -0.05 0.02
5 0.10 0.06
  1. Compute the arithmetic mean annual rate of return for each stock. Round your answers to one decimal place (for both stock T and stock B) then specify which stock is more desirable
  2. Compute the standard deviation of the annual rate of return for each stock. (Use Chapter 1 Appendix if necessary.) Do not round intermediate calculations. Round your answers to three decimal places. (for both stock T and stock B) then specify which stock is more desirable in this case
  3. Compute the coefficient of variation for each stock. (Use the Chapter 1 Appendix if necessary.) Do not round intermediate calculations. Round your answers to four decimal places. (for both stock T and stock B) then specify which stock is more desirable in this case
  4. Compute the geometric mean rate of return for each stock. Round your answers to three decimal places. (for both stock T and stock B) then specify which stock is more desirable in this case
  5. You are considering acquiring shares of common stock in the Madison Beer Corporation. Your rate of return expectations are as follows:
MADISON BEER CORP.
Possible Rate of Return Probability
-0.10 0.10
0.00 0.20
0.15 0.10
0.25 0.60
    1. Compute the expected return [E(Ri)] on your investment in Madison Beer. Round your answer to one decimal place.
  1. A stockbroker calls you and suggests that you invest in the Lauren Computer Company. After analyzing the firm’s annual report and other material, you believe that the distribution of expected rates of return is as follows:
LAUREN COMPUTER CO.
Possible Rate of Return Probability
-0.25 0.10
-0.10 0.10
0.05 0.15
0.20 0.20
0.30 0.10
0.40 0.35
    1. Compute the expected return [E(Ri)] on Lauren Computer stock. Use a minus sign to enter a negative value, if any. Round your answer to one decimal place.
  1. During the past year, you had a portfolio that contained U.S. government T-bills, long-term government bonds, and common stocks. The rates of return on each of them were as follows:

U.S. government T-bills 4.70 %
U.S. government long-term bonds 8.60
U.S. common stocks 11.80

    1. During the year, the consumer price index, which measures the rate of inflation, went from 100 to 119 (1982 – 1984 = 100). Compute the rate of inflation during this year. Round your answer to one decimal place.
    2. Compute the real rates of return on each of the investments in your portfolio based on the inflation rate. Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to two decimal places. (for US government T-bills, US government long-term bonds, and US Common stocks)
  1. You read in BusinessWeek that a panel of economists has estimated that the long-run real growth rate of the U.S. economy over the next five-year period will average 3 percent. In addition, a bank newsletter estimates that the average annual rate of inflation during this five-year period will be about 8 percent. What nominal rate of return would you expect on U.S. government T-bills during this period? Round your answer to two decimal places.
  2. You read in BusinessWeek that a panel of economists has estimated that the long-run real growth rate of the U.S. economy over the next five-year period will average 6 percent. In addition, a bank newsletter estimates that the average annual rate of inflation during this five-year period will be about 2 percent. What nominal rate of return would you expect on U.S. government T-bills during this period? Round your answer to two decimal places.
    1. What would your required rate of return be on common stocks if you wanted a 3 percent risk premium to own common stocks? Do not round intermediate calculations. Round your answer to two decimal places.
    2. If common stock investors became more risk averse, what would happen to the required rate of return on common stocks? What would be the impact on stock prices?: As an investor becomes more risk averse, the required rate of return will _____ and the stock prices will _____. (choose incline or decline)
  3. Assume that the consensus required rate of return on common stocks is 13 percent. In addition, you read in Fortune that the expected rate of inflation is 5 percent and the estimated long-term real growth rate of the economy is 4 percent. What interest rate would you expect on U.S. government T-bills? Round your answer to two decimal places.
    1. What is the approximate risk premium for common stocks implied by these data? Do not round intermediate calculations. Round your answer to two decimal places.