Question 1

A stock purchased for $52 paid a dividend of $1 six days after it was purchased.The stock was sold for $51 ninety days after it was purchased.What is the annualized rate of return? Assume the dividend was not reinvested.

Accepted Answer

The answer of A stock purchased for $52 paid a...

Question 2

Use the information below to solve for the dividend yield for Midas.

Accepted Answer

The answer of Use the information below to solve for...

Question 3

Use the information below to solve for the earnings per share for Landstar.

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The answer of Use the information below to solve for...

Question 4

Angela Johnson bought Microsoft stock many years ago when the company was very young;so,clearly,she has done very well with her investment.Now that Microsoft is more established,its stock price has started to falter somewhat.Angela really thinks that Microsoft will continue to be a good investment in the future,so she plans to stay in the stock for the time being.However,at the same time,she wants to protect the profits she has already amassed.She follows the market every day,so she is confident she can initiate a sell order when necessary to ensure she receives the gains she has realized to this point.Unfortunately,Angela is leaving the country for an extended vacation in China,where she will be out of touch with the investment world,and she is worried that something might happen to Microsoft during the time she is gone that will substantially decrease the "paper" profits she now has.Given that Angela believes Microsoft will continue its upward movement but she also wants to protect her "paper" profits,which of the following orders should she place with her broker before she leaves for China?

Accepted Answer

A stop (sell) order is appropriate in this scenario because it allows Angela to set a specific price at which her Microsoft stock will be sold if the market price drops to that level, thus protecting her from significant losses while she is unable to monitor the stock. This type of order helps safeguard her profits without requiring her to sell immediately, aligning with her belief in the stock's future potential and her need to protect her gains while she is away.

Question 5

An investor earned a holding period return equal to 10 percent on a stock that she purchased for $27.50.During the time she held the stock,the company paid a $2 dividend.For what price did the investor sell the stock?

Accepted Answer

The holding period return (HPR) is calculated as (Ending Price - Initial Price + Dividend) / Initial Price. Here, 0.10 = (Ending Price - 27.50 + 2) / 27.50. Solving for the Ending Price gives $28.25.

Question 6

A bond with an annual coupon rate of 12 percent and face value of $1,000.00 was purchased for $990.00 and sold two years later for $1,050.00.What was the holding period return?

Accepted Answer

The holding period return (HPR) can be calculated by considering the income from the bond (annual coupons), the capital gain (or loss) from selling the bond, and the initial purchase price. Here, the bond pays an annual coupon of 12% of its face value, which is $1,000.00, so the annual coupon payment is $120.00. Over two years, the total coupon income is $240.00. The bond was purchased for $990.00 and sold for $1,050.00, resulting in a capital gain of $60.00. The total return over the holding period is the sum of the coupon income and the capital gain, which is $240.00 + $60.00 = $300.00. The initial investment was $990.00, so the holding period return is ($300.00 / $990.00) * 100 = 30.3%.

Question 7

Staci purchased a stock on April 12 for $78.00 and sold it on October 13 the same year,for $76.75.What is Staci's holding period return assuming she received a dividend of $2.20 per share on June 14,which was not reinvested?

Accepted Answer

The holding period return is calculated as: [(Ending Price - Beginning Price + Dividend) / Beginning Price] * 100. So, [(76.75 - 78.00 + 2.20) / 78.00] * 100 = 1.2%.

Question 8

Steve purchased a bond for $975.00.Ninety days later he received interest income of $40.00,and then immediately sold the bond for $990.00.What is the annualized rate of return Steve earned on this investment?

Accepted Answer

Steve's total return from the bond is the sum of the interest income and the capital gain. The interest income is $40, and the capital gain is the difference between the sale price ($990) and the purchase price ($975), which is $15. Therefore, the total return is $40 + $15 = $55. The initial investment was $975, so the return as a percentage of the investment is ($55 / $975) * 100 = 5.64%. However, this return was achieved over 90 days, not a year. To annualize the return, we use the formula for annualizing returns over periods shorter than a year: Annualized Return = (Return over period + 1)^(365/Days in period) - 1. Plugging in the numbers: Annualized Return = ((55/975) + 1)^(365/90) - 1 ≈ 22.6%.

Question 9

Use the following information to compute the simple arithmetic average return for Topwater Boats for the period from 2007 through 2012?

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The answer of Use the following information to compute the...

Question 10

Use the information below to solve for the earnings per share for Adobe.

Accepted Answer

To solve for earnings per share, we need to divide the company's net income by the total number of outstanding shares.

From the information provided, Adobe's net income is $2.59 billion and the number of outstanding shares is 787 million.

Earnings per share = Net income / Outstanding shares
Earnings per share = $2.59 billion / 787 million
Earnings per share = $3.29

Therefore, the earnings per share for Adobe is $3.29, which corresponds to choice C.

Question 11

An investor purchased 1,000 shares of AZT stock on January 5,2012 for $83.25 per share.On March 20,a dividend of $0.75 per share was paid.Fifty days later,on May 9,2012,the stock was sold for $85.00.What is the holding period return? Assume the dividend is not reinvested.

Accepted Answer

The holding period return (HPR) can be calculated as follows: HPR = [(P1 - P0) + D] / P0, where P0 is the initial price of the stock, P1 is the final price, and D is the dividend received. Here, P0 = $83.25, P1 = $85.00, and D = $0.75. So, HPR = [($85.00 - $83.25) + $0.75] / $83.25 = $2.50 / $83.25 = 0.03, or 3.0%.

Question 12

At the beginning of 2010,Sally purchased Besham stock on margin.The initial margin requirement is 60 percent and the broker loan rate is 10 percent.Sally invested $15,000 of her own funds and margined the maximum amount allowed by the broker to purchase Besham stock.At the time,the purchase price of the stock was $50 a share.No dividends were paid during the year,and the stock was sold for $48 a share at the end of the 2010.What is the one-year holding period return for this investment?

Accepted Answer

Sally invested $15,000 and margined 40% of the purchase, allowing her to buy $25,000 worth of stock (500 shares at $50 each). She sold the stock for $48 per share, totaling $24,000. The loss is $1,000. The interest on the $10,000 margin loan is $1,000 (10% of $10,000). The total loss is $2,000, which is 0% return on her $15,000 investment.

Question 13

At the beginning of 2010,Steve purchased ACME stock on margin.The initial margin requirement is 50 percent and the broker loan rate is 8 percent.Steve invested $15,000 of his own funds and margined the maximum amount allowed by the broker to purchase ACME stock.At the time,the purchase price of the stock was $25 a share.No dividends were paid during the year,and the stock was sold for $32 a share at the end of the 2010.What is the one-year holding period return for this investment?

Accepted Answer

Steve invested $15,000 and margined another $15,000 (50% margin requirement) to buy 1,200 shares at $25 each. He sold them at $32 each, making $38,400. The loan interest was $1,200 (8% of $15,000). The profit is $38,400 - $30,000 - $1,200 = $7,200. The return is $7,200 / $15,000 = 48%.

Question 14

Your brokerage firm allows market trading with an initial margin requirement equal to 60 percent plus an 8 percent broker loan rate.You have $6,000 to invest.How many shares of ABC can you purchase on margin? ABC stock currently sells for $50 a share.

Accepted Answer

To calculate the number of shares you can purchase on margin, first determine the total amount you can control with your $6,000 given the 60% initial margin requirement. This means you can control $6,000 / 0.60 = $10,000 worth of stock. At $50 per share, you can purchase $10,000 / $50 = 200 shares of ABC.

Question 15

Tristar Growth Mutual Fund reported annual holding period returns of 22 percent in 2010,25 percent in 2011,and 31 percent in 2012.What was the simple arithmetic average return generated by Tristar for the period 2010 through 2012?

Accepted Answer

To find the arithmetic average return generated by Tristar for the period 2010 through 2012, we need to add the annual holding period returns for the three years and divide by the number of years (3):
(22% + 25% + 31%) / 3 = 26%

Therefore, the best choice is C) 26.0%.

Question 16

An investor receives a margin call because

Accepted Answer

The investor receives a margin call when the price of the stock they purchased on margin has decreased to the extent that their actual margin is below the maintenance margin. In this scenario, the investor must either add more funds to their account to meet the margin requirement or sell some securities to pay off a portion of their loan.

Question 17

You have an arrangement with your brokerage firm that allows you to purchase stock on margin with an initial margin requirement of 25 percent and a broker loan rate of 10 percent.What is the maximum amount of stock you can purchase on margin if you have $20,000 to invest?

Accepted Answer

The maximum amount of stock you can purchase on margin would be calculated by dividing the total investment amount by the initial margin requirement.

Maximum amount of stock = $20,000 / 0.25 = $80,000

However, it is important to remember that purchasing stocks on margin comes with risks, as the investor would be borrowing money to invest and would have to pay back the loan with interest. It is also important to consider market conditions and the potential for stock prices to fluctuate.

Question 18

When the market is rising we call it a ____ market,which suggests the economy is performing well;when the market is falling we call it a ____ market,which suggests the economy is performing poorly.

Accepted Answer

The terms "bull" and "bear" are commonly used in finance to describe the direction of the stock market. A "bull market" refers to a market that is on the rise and suggests that the economy is performing well. On the other hand, a "bear market" refers to a market that is on the decline and suggests that the economy is performing poorly. Therefore, option A) is the best choice.

Question 19

A long-term investment strategy where investors purchase securities with the intent to keep them for a long period before liquidation is called

Accepted Answer

Buy-and-hold strategy involves holding on to securities for an extended period, typically for several years, to allow the value of the investment to appreciate. This strategy helps to take advantage of the long-term growth potential of the investment and avoids the volatility associated with short-term market fluctuations. The other answer choices, speculation, shorting the stock, margin trading, and option trading are all short-term investment strategies that carry a higher level of risk and require active monitoring and management.

Question 20

Use the information below to solve for the dividend yield for Lowes.

Accepted Answer

To calculate dividend yield, we need the annual dividend per share and the current stock price. According to the information provided in the code, Lowes has a dividend payout of $2.20 per share and a current stock price of $116.14 per share.

Dividend Yield = (Annual Dividend per Share / Current Stock Price) x 100%
Dividend Yield = ($2.20 / $116.14) x 100%
Dividend Yield = 0.01897 x 100%
Dividend Yield = 1.897%

Therefore, the answer is A) 1.9%.

Quiz 16: Investment and Securities