Fundamentals of Investments: Valuation and Management 9th Edition by Bradford Jordan test bank

on this stock for the next 10 years?
10.17%
10.21%
10.38%
10.46%
10.79%
Projected return = {[(10 − 1) / (15 − 1)] × .1041} + {[(15 − 10) / (15 − 1)] × .1055} = .1046, or 10.46%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.5 More on
Average Returns



 

 92.
Award: 1.00 point
Leeanne owns a stock that has an average geometric return of 12.30 percent and an average
arithmetic return of 12.55 percent over the past six years. What average annual rate of return should
Leeanne expect to earn over the next four years?
12.38%
12.40%
12.44%
12.47%
12.51%
Projected return = {[(4 鈭� 1) / (6 鈭� 1)] 脳 .1230} + {[(6 鈭� 4) / (6 鈭� 1)] 脳 .1255} = .1240, or
12.40%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.5 More on
Average Returns

 



 93.
Award: 1.00 point
Tom decides to begin investing some portion of his annual bonus, beginning this year with $6,000.
In the first year he earns an 8 percent return and adds $3,000 to his investment. In the second his
portfolio loses 4 percent but, sticking to his plan, he adds $1,000 to his portfolio. In this year his
portfolio returns 2 percent. What is Tom's dollar-weighted average return on his investments?
.34%
1.20%
1.54%
2.23%
2.58%
Using the Cash Flow function in a financial calculator, the cash flows to be entered are:
CF0 = −$6,000
CF1 = −$3,000
CF2 = −$1,000
CF3 = (((($6,000 × 1.08) + $3,000) × .96) + $1,000) × 1.02 = $10,302.82
Solve for IRR = 1.20%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.5 More on
Average Returns

 



 94.
Award: 1.00 point
Bill has been adding funds to his investment account each year for the past 3 years. He started with
an initial investment of $1,000. After earning a 10 percent return the first year, he added $3,000 to
his portfolio, but his investments lost 5 percent. Undeterred, Bill added $2,000 the next year and
earned a 2 percent return. Last year, discouraged by the recent results, he only added $500 to his
portfolio, but in this final year his investments earned 8 percent. What was Bill's dollar-weighted
average return for his investments?
1.5%
2.0%
2.5%
3.0%
3.5%
Using the Cash Flow function in a financial calculator, the cash flows to be entered are:
CF0 = −$1,000
CF1 = −$3,000
CF2 = −$2,000
CF3 = −$500
CF4 = ((((($1,000 × 1.1) + $3,000) × .95) + $2,000) × 1.02 + $500) × 1.08 = $7,033.93
Solve for IRR = 3.0%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.5 More on
Average Returns



 

 95.
Award: 1.00 point
John began his investing program with a $5,500 initial investment. The table below recaps his
returns each year as well as the amounts he added to his investment account. What is his dollar-
weighted average return?
Time Investment  Return
0 $ 5,500    8.5%
1 $ 2,000   −5.0%
2 $ 2,600    4.5%
3 $ 3,000    9.0%
4 $ 900   −2.5%
1.5%
1.8%
2.0%
2.2%
2.6%
Using the Cash Flow function in a financial calculator, the cash flows to be entered are:
CF0 = −$5,500
CF1 = −$2,000
CF2 = −$2,600
CF3 = −$3,000
CF4 = −$900
CF5 = $15,359.31 (see calculations below)
Solve for IRR = 2.6%
$5,500 × (1.085) = $5,967.50
($5,967.50 + $2,000) × (.95) = $7,569.13
($7,569.13 + $2,600) × (1.045) = $10,626.74
($10,626.74 + $3,000) × (1.09) = $14,853.14
($14,853.14 + $900) × (.975) = $15,359.31
References




 
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium