clearlycanadian

An investor buys a 10 3/8 treasury note for 103 11/32 and sells it one year later for 101 13/32. What is the holding period yield?

A) 8.14%.

B) 8.16%.

C) 8.22%.

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103 11/32 = 103.344% or $1,033.44  
101 13/32  = 101.406% or $1,014.06
A coupon of 10 3/8 = 10.375% or $103.75
The rate of return equals the [(ending cash flows − the beginning cash flows) / beginning price] × 100 =  [(1014.06 + 103.75 − 1033.44) / 1033.44] × 100 = 8.16%

clearlycanadian

A bond that pays $100 in interest each year was purchased at the beginning of the year for $1,050 and sold at the end of the year for $1,100. An investor's holding period return is:

A) 10.5%.

B) 14.3%.

C) 10.0%.

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Input into your calculator: N = 1; FV = 1,100; PMT = 100; PV = -1,050; CPT → I/Y = 14.29

clearlycanadian

When Annette Famigletti hears that a baseball-loving friend is coming to visit, she purchases two premium-seating tickets for $45 per ticket for an evening game. As the date of the game approaches, Famigletti’s friend telephones and says that his trip has been cancelled. Fortunately for Famigletti, the tickets she holds are in high demand as there is chance that the leading Major League Baseball hitter will break the home run record during the game. Seeing an opportunity to earn a high return, Famigletti puts the tickets up for sale on an internet site. The auction closes at $150 per ticket. After paying a 10% commission to the site (on the amount of the sale) and paying $8 total in shipping costs, Familgletti’s holding period return is approximately:

A) 182%.

B) 202%.

C) 191%.

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The holding period return is calculated as: (ending price − beginning price +/- any cash flows) / beginning price. Here, the beginning and ending prices are given. The other cash flows consist of the commission of $30 (0.10 × 150 × 2 tickets) and the shipping cost of $8 (total for both tickets). Thus, her holding period return is: (2 × 150 − 2 × 45 − 30 − 8) / (2 × 45) = 1.91, or approximately 191%.

clearlycanadian

An investor sold a 30-year bond at a price of $850 after he purchased it at $800 a year ago. He received $50 of interest at the time of the sale. The annualized holding period return is:

A) 6.25%.

B) 12.5%.

C) 15.0%.

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The holding period return (HPR) is calculated as follows:

HPR = (Pt − Pt-1 + Dt) / Pt
where:
Pt = price per share at the end of time period t
Dt = cash distributions received during time period t.
Here, HPR = (850 − 800 + 50) / 800 = 0.1250, or 12.50%.

clearlycanadian

A stock is currently worth $75. If the stock was purchased one year ago for $60, and the stock paid a $1.50 dividend over the course of the year, what is the holding period return?

A) 27.5%.

B) 22.0%.

C) 24.0%.

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(75 − 60 + 1.50) / 60 = 27.5%.

clearlycanadian

If an investor bought a stock for $32 and sold it one year later for $37.50 after receiving $2 in dividends, what was the holding period return on this investment?

A) 17.19%.

B) 23.44%.

C) 6.25%.

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HPR = [D + End Price − Beg Price] / Beg Price
HPR = [2 + 37.50 − 32] / 32 = 0.2344.

clearlycanadian

A bond was purchased exactly one year ago for $910 and was sold today for $1,020. During the year, the bond made two semi-annual coupon payments of $30. What is the holding period return?

A) 12.1%.

B) 18.7%.

C) 6.0%.

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HPY = (1,020 + 30 + 30 – 910) / 910 = 0.1868 or 18.7%.

clearlycanadian

An investor buys one share of stock for $100. At the end of year one she buys three more shares at $89 per share. At the end of year two she sells all four shares for $98 each. The stock paid a dividend of $1.00 per share at the end of year one and year two. What is the investor’s time-weighted rate of return?

A) 0.06%.

B) 6.35%.

C) 11.24%.

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The holding period return in year one is ($89.00 − $100.00 + $1.00) / $100.00 = -10.00%.
The holding period return in year two is ($98.00 − $89.00 + $1.00) / $89 = 11.24%.
The time-weighted return is [{1 + (-0.1000)}{1 + 0.1124}]1/2 – 1 = 0.06%.

clearlycanadian

An investor buys one share of stock for $100. At the end of year one she buys three more shares at $89 per share. At the end of year two she sells all four shares for $98 each. The stock paid a dividend of $1.00 per share at the end of year one and year two. What is the investor’s money-weighted rate of return?

A) 6.35%.

B) 5.29%.

C) 0.06%.

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T = 0: Purchase of first share = -$100.00
T = 1: Dividend from first share = +$1.00
Purchase of 3 more shares = -$267.00
T = 2: Dividend from four shares = +4.00
Proceeds from selling shares = +$392.00
The money-weighted return is the rate that solves the equation:
$100.00 = -$266.00 / (1 + r) + 396.00 / (1 + r)2.
CFO = -100; CF1 = -266; CF2 = 396; CPT → IRR = 6.35%.

clearlycanadian

An investor buys four shares of stock for $50 per share. At the end of year one she sells two shares for $50 per share. At the end of year two she sells the two remaining shares for $80 each. The stock paid no dividend at the end of year one and a dividend of $5.00 per share at the end of year two. What is the difference between the time-weighted rate of return and the money-weighted rate of return?

A) 9.86%.

B) 20.52%.

C) 14.48%.

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T = 0: Purchase of four shares = -$200.00
T = 1: Dividend from four shares = +$0.00
Sale of two shares = +$100.00
T = 2: Dividend from two shares = +$10.00
Proceeds from selling shares = +$160.00
The money-weighted return is the rate that solves the equation:
$200.00 = $100.00 / (1 + r) + $170.00 / (1 + r)2.
Cfo = -200, CF1 = 100, Cf2 = 170, CPT → IRR = 20.52%.
The holding period return in year one is ($50.00 − $50.00 + $0.00) / $50.00 = 0.00%.
The holding period return in year two is ($80.00 − $50.00 + $5.00) / $50 = 70.00%.
The time-weighted return is [(1 + 0.00)(1 + 0.70)]1/2 − 1 = 30.38%.
The difference between the two is 30.38% − 20.52% = 9.86%.