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

Section: 1.5 More on
Average Returns
 96.
Award: 1.00 point
Jim began his investing program with a $4,000 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 $ 4,000     10%
1 $ 2,800   − 5%
2 $ 900     2%
3 $ 1,600     8%
4 $ 2,100   − 3%
5 $ 2,400     6%
1.6%
2.2%
2.6%
3.2%
3.6%
Using the Cash Flow function in a financial calculator, the cash flows to be entered are:
CF0 = −$4,000
CF1 = −$2,800
CF2 = −$900
CF3 = −$1,600
CF4 = −$2,100
CF5 = −$2,400
CF6 = $15,246.78 (see calculations below)
Solve for IRR = 2.6%
$4,000 × (1.10) = $4,400
($4,400 + $2,800) × (.95) = $6,840
($6,840 + $900) × (1.02) = $7,894.80
($7,894.80 + $1,600) × (1.08) = $10,254.38
($10,254.38 + $2,100) × (.97) = $11,983.75
($11,983.75 + $2,400) × (1.06) = $15,246.78
References
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 97.
Award: 1.00 point
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
One year ago, you purchased 400 shares of stock at a cost of $5,000. The stock paid an annual
dividend of $11.30 per share. Today, you sold those shares for $23.50 each. What is the capital gains
yield on this investment?
8.80%
9.96%
11.50%
12.7%
14.75%
[($23.50 脳 400) 鈭� $5,000] / $5,000 = .0880, or 8.80%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.1 Returns
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 98.
Award: 1.00 point
Eileen just sold a stock and realized a 6.25 percent return for a 7-month holding period. What was
her annualized rate of return?
9.98%
10.95%
12.78%
15.29%
17.20%
1 + EAR = (1 + .0625) 12/7 − 1 = .1095, or 10.95%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.1 Returns
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 99.
Award: 1.00 point
Downtown Industries’ common stock had returns of 5.2, 10.3, 9.3, and 9.5 percent, respectively,
over the past four years. What is the standard deviation of these returns?
2.29%
2.38%
2.41%
2.59%
2.82%
Mean = (.052 + .103 + .093 + .095) / 4 = .0858
Var = [(.052 − .0858) 2 + (.103 − .0858) 2 + (.093 − .0858) 2 + (.095 −
.0858) 2 ] / (4 − 1) = .00052492
Std Dev = √ (.00052492) = .0229, or 2.29%
References
Multiple Choice Learning Objective:
01-03 The historical
risks on various
important types of
investments.
Difficulty: 1 Easy Section: 1.4 Return
Variability: The
Second Lesson
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 100.
Award: 1.00 point
You own a stock that has produced an arithmetic average return of 5.6 percent over the past five
years. The annual returns for the first four years were 15, 10, −18, and 8 percent, respectively. What
was the rate of return on the stock in year five?
−5.00%
2.75%
6.25%
13.00%
32.00%
Total return = .056 × 5 = .28
Year 5 return = .28 − (.15 + .10 − .18 + .08) = .13, or 13%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
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 101.
Award: 1.00 point
A stock produced annual returns of 8.5, −18, 15, 17, and 12 percent over the past five years,
respectively. What is the geometric average return?
5.78%
6.04%
6.34%
7.21%
8.20%
Geometric average = [(1 + .085)(1 − .18)(1 + .15)(1 + .17)(1 + .12)] 1 / 5 −
1 = .0604, or 6.04%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
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 102.
Award: 1.00 point