Reading 6: Discounted Cash Flow Applications-LOS c 习题精选 2011, currently, interpret, increase, investor

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Session 2: Quantitative Methods: Basic Concepts
Reading 6: Discounted Cash Flow Applications

LOS c: Define, calculate, and interpret a holding period return (total return).

 

 

An investor expects a stock currently selling for $20 per share to increase to $25 by year-end. The dividend last year was $1 but he expects this year's dividend to be $1.25. What is the expected holding period return on this stock?

A) 31.25%.

B) 24.00%.

C) 28.50%.

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Return = [dividend + (end ? begin)] / beginning price

R = [1.25 + (25 ? 20)] / 20 = 6.25 / 20 = 0.3125

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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) 6.25%.

C) 23.44%.

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HPR = [D + End Price ? Beg Price] / Beg Price

HPR = [2 + 37.50 ? 32] / 32 = 0.2344.

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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) 6.0%.

C) 18.7%.

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

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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) 14.3%.

B) 10.5%.

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

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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%.

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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) 12.5%.

B) 6.25%.

C) 15.0%.

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

HPR = (P_t ? P_t-1 + D_t) / P_t

where:
P_t = price per share at the end of time period t
D_t = cash distributions received during time period t.

Here, HPR = (850 ? 800 + 50) / 800 = 0.1250, or 12.50%.

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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) 22.0%.

B) 27.5%.

C) 24.0%.

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(75 ? 60 + 1.50) / 60 = 27.5%.

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An investor is considering investing in Tawari Company for one year. He expects to receive $2 in dividends over the year and feels he can sell the stock for $30 at the end of the year. To realize a return on the investment over the year of 14%, the price the investor would pay for the stock today is closest to:

A) $29.

B) $32.

C) $28.

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HPR = [Dividend + (Ending price ? Beginning price)] / Beginning price

0.14 = [2 + (30 ? P)] / P

1.14P = 32 so P = $28.07

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Banca Hakala purchases two front row concert tickets over the Internet for $90 per seat. One month later, the rock group announces that it is dissolving due to personality conflicts and the concert that Hakala has tickets for will be the “farewell” concert. Hakala sees a chance to raise some quick cash, so she puts the tickets up for sale on the same internet site. The auction closes at $250 per ticket. After paying a 10% commission to the site on the amount of the sale and paying $10 in shipping costs, Hakala’s one-month holding period return is approximately:

A) 44%.

B) 144%.

C) 139%.

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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 0.10 × $250 × 2 tickets = $50 and the shipping cost of $10 (total for both tickets).

Thus, her one-month holding period return is: [(2 × $250) – (2 × $90) – $50 ? $10] / (2 × $90) = 1.44, or approximately 144%.

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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) 8.16%.

B) 8.14%.

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%