Download 2 - JustAnswer

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.
Realized percentage holding period return:
= [(4400 - 4000 + 4(40))/4000] x 100%
= 14%
Since the stock has been sold, next year’s expected price performance is irrelevant.
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.
Percentage holding period return:
= [($1,000 - $975 + $60)/$975] x 100% = 8.72%
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.
Expected percentage holding period return = [(65 - 60 + 4)/60] x 100%
= 15.0%
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.
Realized percentage holding period return = [(75 - 60 + 4)/60] x 100%
= 31.67%
c. Repeat (b) given that NTT’s common stock is selling for $58 1 year later.
Realized percentage holding period return = [(58 - 60 + 4)/60] x 100%
= 3.33%
d. Repeat (b) given that NTT’s common stock is selling for $50 1 year later.
Realized percentage holding period return = [(50 - 60 + 4)/60] x 100%
= -10.0%
6. Six months ago, you purchased a tract of land in an area where a new
industrial park was rumored to be planned. This land cost you $110,000, and
the seller offered you an interest-free loan for 70 percent of the land cost.
Today, the industrial park project was formally announced, and an attorney
for the developer has just offered you $190,000 for your land. If you accept
this offer, what will be your holding period return on this investment?
Percentage holding period return (based on equity investment only)
= [($190,000 - $110,000)/$33,000] x 100%
= 242.42% over the 6 month holding period.
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
bonds receive?
ConocoPhillips = $59.00
Amerada Hess = $71.25
b. How much would you have to pay to buy one COP bond at the last price
shown?
$959.72
c. Why do you think the yield-to-maturity on the AHC bond is higher than the
yield to maturity on the COP bond?
Since the maturities are similar, the difference in the yield to maturities is most likely
due to differences in default risk between the two bonds.