Chapter One Problems
1. At the beginning of last year, you invested $4,000 in 80 shares of Chang Corporation. During the year, Chang paid dividends of $5 per share. At the end of the year, you sold the 80 shares for $59 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.
2. The rates of return computed in Problems 1, 2, and 3 are nominal rates of return. Assuming that the rate of inflation during the year was 4 percent, compute the real rates of return on these investments. Compute the real rates of return if the rate of inflation was 8 percent.
(Here is problems 1 & 2 for this question) #1 on February 1, you brought 100 shares of stock in the Francesca Corporation for $34 a share and a year later you sold it for $39 a share. During the year, you received a cash dividend of $1.50 a share. Compute your HPR and HPY on this Francesca stock investment. #2 On August 15, you purchased shares of stock in the Cara Cotton Company at $65 a share and a year later you sold it for $61 a share. During the year, you received dividends of $3 a share. Compute your HPR and HPY on your investment in Cara Cotton.)
Chapter two problems
#4. a. Someone in the 36 percent tax bracket can earn 9 percent annually on her investments in a tax-exempt IRA account. What will be the value of a one-time $10,000 investment in five years? 10 years? 20 years?
b. Suppose the preceding 9 percent return is taxable rather than tax-deferred and the taxes are paid annually. What will be the after-tax value of her $10,000 investment after 5, 10, and 20 years?
#5. a. Someone in the 15 percent tax bracket can earn 10 percent on his investments in a tax-exempt IRA account. What will be the value of a $10,000 investment in 5 years? 10 years? 20 years?
b. Suppose the preceding 10 percent return is taxable rather than tax-deferred. What will be the after-tax value of his $10,000 investment after 5, 10, and 20 years?
Chapter 4 Problems:
#2. Lauren has a margin account and deposits $50,000. Assume the prevailing margin requirement is 40 percent, commissions are ignored, and the Gentry Wine Corporation is selling $35 per share.
a. How many shares can Lauren purchase using the maximum allowable margin?
b. What is Lauren's profit (loss) if the price of Gentry's stock
i. rises to $45?
ii. Falls to $25
c. If the maintenance margin is 30 percent, to what price can Gentry Wine fall before Lauren will receive a margin call?
#4. You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its yearly high of $56. Your broker tells you that your margin requirement is 45 percent and that the commission on the purchase is $155. While you are short the stock, Charlotte pays a $2.50 per share dividend. At the end of one year, you buy 100 shares of Charlotte at $45 to close out your position and are charged a commission of $145 and 8 percent interest on the money borrowed. What is your rate of return on the investment?
Chapter 5 Problem
You are given the following information regarding prices for a sample of stocks.
a. Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1.
b. Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1
c. Briefly discuss the difference in the results for the two indexes.