Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN: 9780357033609
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 12, Problem 1FPE

What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns.

  1. a. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share).
  2. b. Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero).
  3. c. Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).
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Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities. Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment: Stocks Bonds Commodities Probability Return Probability Return Probability Return 20% 15% 0.15 20% 0.6 10% 0.2 0.2 12.5% 0.4 7.5% 0.2 0.25 0.2 0.4 3.8% 0.2 0.2 0% To maximize your expected return, you should choose O A. commodities. B. bonds. OC. stocks. OD. All of the portfolios have the same expected return
Ranking investments by expected returns What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Round the answers to two decimal places. Do not round intermediate calculations.   Buy a stock for $45 a share, hold it for 3 years, then sell it for $75 a share (the stock pays annual dividends of $3 a share). % Buy a security for $25, hold it for 2 years, then sell it for $60 (current income on this security is zero). Do not round intermediate calculations. % Buy a 1-year, 12 percent note for $950 (assume that the note has a $1,000 par value and that it will be held to maturity). Do not round intermediate calculations. %
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