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

Louis owns a stock that has had an average geometric return of 10.50 percent and an average
arithmetic return of 11.00 percent over the past six years. What average annual rate of return should
Louis expect to earn over the next four years?
10.38%
10.40%
10.64%
10.70%
10.81%
Projected return = {[(4 − 1) / (6 − 1)] × .1050} + {[(6 − 4) / (6 − 1)] × .1100} = .1070, or 10.70%
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
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 103.
Award: 1.00 point
John began his investing program with a $6,500 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 $ 6,500    7.5%
1 $ 2,500   −4.0%
2 $ 3,100    5.0%
3 $ 3,000    8.0%
4 $ 800   −1.5%
1.5%
1.8%
2.0%
2.2%
2.8%
Using the Cash Flow function in a financial calculator, the cash flows to be entered are:
CF0 = −$6,500
C01 = −$2,500
C02 = −$3,100
C03 = −$3,000
C04 = $800
C05 = $17,615.61 (see calcs below)
Solve for IRR = 2.8%
$6,500 × (1.075) = $6,987.50
($6,987.50 + $2,500) × (.96) = $9,108.00
($9,108.00 + $3,100) × (1.05) = $12,818.40
($12,818.40 + $3,000) × (1.08) = $17,083.87
($17,083.87 + $800) × (.985) = $17,615.61
References
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 104.
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 100 shares of common stock at $25.00 per share. During the past
year, you received dividends of $.75 per share. Today, you sold your shares for $24.00 per share.
What is your total return on this investment?
−.50%
−1.00%
.50%
1.00%
−10.00%
[$24.00 − $25.00 + $.75] / $25.00 = −.0100, or −1.00%
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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 105.
Award: 1.00 point
A single common stock share was purchased for $50.00 at the beginning of the year. The end of
year stock price was $49.35. What was the amount of the annual dividend if the total return for the
year was 2.3 percent?
$1.25 per share
$1.40 per share
$1.60 per share
$1.80 per share
$2.20 per share
($49.35 − $50.00 + D) / $50.00 = .023; D = $1.80
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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 106.
Award: 1.00 point
You purchased a stock for $35.00 a share and resold it one year later. Your total return for the year
was 7.5 percent and the dividend yield was 1.4 percent. At what price did you resell the stock?
$35.75
$36.05
$36.15
$37.14
$38.24
Capital gains yield = 7.5% – 1.4% = 6.1%
$35.00 × (1 + .061) = $37.14
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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 107.
Award: 1.00 point
Jimmy purchased a stock for $22.22 a share, received a dividend of $.55 a share, and sold the
stock after one year for $25.36 a share. What was his dividend yield on this investment?
2.30%
2.38%
2.48%
2.56%
2.65%
$.55 / $22.22 = .0248, or 2.48%
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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 108.
Award: 1.00 point
You purchased a stock eight months ago for $55 a share. Today, you sold that stock for $64.50 a
share. The stock pays no dividends. What was your annualized rate of return?
17.27%
18.15%
18.35%
19.34%
27.00%
HPR = ($64.5 − $55) / $55 = .1727, or 17.27%