Question 1

Can the income yield from an investment be negative? Explain or give an example.

Accepted Answer

If the expenses associated with an investment exceed the income from the investment, then the net income and the income yield will be negative.

Question 2

The price of Bionex Inc. shares rose by 25% in each of 2 successive years. If they began the 2-year period at $12 per share, what was the percent increase in price over the entire 2 years?

Accepted Answer

The answer of The price of Bionex Inc. shares rose...

Question 3

Is it possible for the capital gain yield to exceed 100%? Explain or give an example.

Accepted Answer

If the value of an investment more than doubles during the holding period, the capital gain is more than 100%.

Question 4

Assume that the TD Bank shares in Table 9.3 will pay a $2.54 per share dividend in 2013. What would the share price have needed to be at the end of 2013 for a total rate of return in 2013 of 7%?

Accepted Answer

The answer of Assume that the TD Bank shares in...

Question 5

Rose purchased units of the Trimark Fund 1 year ago at $24.10 per unit. Today they are valued at $25.50. On the intervening December 31, there was a distribution of $0.83 per unit. ("Distribution" is the term used by most mutual funds for income paid to unit holders.) Calculate Rose's income yield, capital gain yield, and rate of total return for the year.

Accepted Answer

The answer of Rose purchased units of the Trimark Fund...

Question 6

What is meant by the "total return" from an investment?

Accepted Answer

The answer of What is meant by the "total return"...

Question 7

What rate of return in the second year of an investment is required to break even after a rate of return of -20% in the first year?

Accepted Answer

The answer of What rate of return in the second...

Question 8

Does the combined effect of a 20% increase followed by a 20% decrease differ from the combined effect of a 20% decrease followed by a 20% increase? Justify your answer.

Accepted Answer

If you think of the relevant formula, V_f = V_i (1 + c₁) (1 + c₂), the order of the percent changes affects the order of multiplication. However, it is a basic axiom of mathematics that the order of multiplication does not affect the product.

Question 9

The market value of Stephanie's bonds has declined from $1053.25 to $1021.75 per bond during the past year. In the meantime she has received two semiannual interest payments of $35. Calculate Stephanie's income yield, capital gain yield, and rate of total return for the year.

Accepted Answer

The answer of The market value of Stephanie's bonds has...

Question 10

How much will an investment of $100 be worth after 20 years if it increases in value by 25% in half of the years, but declines by 20% in the other years?

Accepted Answer

The answer of How much will an investment of $100...

Question 11

One year ago, Art Vandelay bought Norwood Industries shares for $37 per share. Today they are worth $40 per share. During the year, Art received dividends of $0.60 per share. What was his income yield, capital gain yield, and rate of total return for the year?

Accepted Answer

The answer of One year ago, Art Vandelay bought Norwood...

Question 12

Is it possible for a capital loss to be worse than -100%? Explain or give an example.

Accepted Answer

Suppose, for example, you bought a $160,000 condominium as an investment property using $40,000 of your own money and $120,000 borrowed on a mortgage loan. Subsequently, the condo's market value fell to $100,000 because "leaky condo" problems were discovered in the building. At that point, you have lost more than 100% of your initial $40,000 investment because the condo's market value is less than the amount owed on the mortgage loan. You must still repay the balance on the loan after the proceeds of the sale are applied to the loan.

Question 13

What rate of return in the second year of an investment will wipe out a 50% gain in the first year?

Accepted Answer

The answer of What rate of return in the second...

Question 14

After two consecutive years of 10% losses, what rate of return in the third year will produce a cumulative loss of 30%?

Accepted Answer

The answer of After two consecutive years of 10% losses,...

Question 15

What rate of return in the second year of an investment will nullify a 25% return on investment in the first year?

Accepted Answer

The answer of What rate of return in the second...

Question 16

After two consecutive years of 10% rates of return, what rate of return in the third year will produce a cumulative gain of 30%?

Accepted Answer

The answer of After two consecutive years of 10% rates...

Question 17

Vitaly's shares of Dominion Petroleum have dropped in value from $36.75 to $32.25 during the past year. The shares paid a $0.50 per share dividend 6 months ago. Calculate Vitaly's income yield, capital gain yield, and rate of total return for the year.

Accepted Answer

The answer of Vitaly's shares of Dominion Petroleum have dropped...

Question 18

What rate of return in the second year of an investment is required to break even after a 50% loss in the first year?

Accepted Answer

The answer of What rate of return in the second...

Question 19

The price of Biomed Corp. shares began a two-year period at $12, but fell 25% in each year. What was their overall percent decline in price?

Accepted Answer

The answer of The price of Biomed Corp. shares began...

Question 20

The federal government cut transfer payments to the provinces by a total of 20% over a five-year period. In the next budget speech, the Minister of Finance announced "the level of transfer payments will be restored to their former level by a 20% increase to be phased in over the next two years." Is this an accurate statement? Explain briefly.

Accepted Answer

The transfer payments will be 4% below their level before the cuts started.

Quiz 9: Compound Interest: Further Topics and Applications

Can the income yield from an investment be negative? Explain or give an example.

The price of Bionex Inc. shares rose by 25% in each of 2 successive years. If they began the 2-year period at $12 per share, what was the percent increase in price over the entire 2 years?

Is it possible for the capital gain yield to exceed 100%? Explain or give an example.

Assume that the TD Bank shares in Table 9.3 will pay a $2.54 per share dividend in 2013. What would the share price have needed to be at the end of 2013 for a total rate of return in 2013 of 7%?

What is meant by the "total return" from an investment?

What rate of return in the second year of an investment is required to break even after a rate of return of -20% in the first year?

Does the combined effect of a 20% increase followed by a 20% decrease differ from the combined effect of a 20% decrease followed by a 20% increase? Justify your answer.

The market value of Stephanie's bonds has declined from $1053.25 to $1021.75 per bond during the past year. In the meantime she has received two semiannual interest payments of $35. Calculate Stephanie's income yield, capital gain yield, and rate of total return for the year.

How much will an investment of $100 be worth after 20 years if it increases in value by 25% in half of the years, but declines by 20% in the other years?

One year ago, Art Vandelay bought Norwood Industries shares for $37 per share. Today they are worth $40 per share. During the year, Art received dividends of $0.60 per share. What was his income yield, capital gain yield, and rate of total return for the year?

Is it possible for a capital loss to be worse than -100%? Explain or give an example.

What rate of return in the second year of an investment will wipe out a 50% gain in the first year?

After two consecutive years of 10% losses, what rate of return in the third year will produce a cumulative loss of 30%?

What rate of return in the second year of an investment will nullify a 25% return on investment in the first year?

After two consecutive years of 10% rates of return, what rate of return in the third year will produce a cumulative gain of 30%?

Vitaly's shares of Dominion Petroleum have dropped in value from $36.75 to $32.25 during the past year. The shares paid a $0.50 per share dividend 6 months ago. Calculate Vitaly's income yield, capital gain yield, and rate of total return for the year.

What rate of return in the second year of an investment is required to break even after a 50% loss in the first year?

The price of Biomed Corp. shares began a two-year period at $12, but fell 25% in each year. What was their overall percent decline in price?