(Calculating rates of return) The common stock of Maco Enterprises had a market price of $12 on the day you purchased it just one year ago. During the past year the stock had paid a $1 dividend and closed at a price of $14. What rate of return did you earn on your investment in Maco’s stock?

Corporate Finance

Assignment Instructions

Complete the homework assignment in Microsoft Word or Excel. Clearly label and organize each problem and show your work. Save your file as “LastnameFirstinitial-FINC600-5.”

1. (Calculating rates of return) The common stock of Maco Enterprises had a market price of $12 on the day you purchased it just one year ago. During the past year the stock had paid a $1 dividend and closed at a price of $14. What rate of return did you earn on your investment in Maco’s stock?
2. (Expected rate of return and risk) Almay, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return?

Common Stock A		Common Stock B
Probability	Return	Probability	Return
0.3	11%	0.2	25%
0.4	15%	0.3	6%
0.3	19%	0.3	14%
		0.2	22%

3.  (Expected rate of return) Carl Jones is considering whether to invest in a newly formed investment fund. The fund’s investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund’s performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes:

State of the Economy	Probability	Fund Return
Rapid expansion and recovery	5%	100%
Modest growth	45%	35%
Continued recession	45%	5%
Falls into depression	5%	–100%

• Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity?
• Calculate the standard deviation

Your homework exercises/problems will be evaluated according to the following Homework Problems Grading Rubric:

 

Grade	Homework Problems Grading Criteria
90-100%	•	Assigned exercises/problems are completed in full.
	•	Work demonstrates effective application of the concepts/principles covered in the chapter.
	•	Work thoroughly explains answers and calculations.
	•	Solutions are calculated with no errors or insignificant errors.
80-89%	•	Assigned exercises/problems are completed in full or are significantly complete.
	•	Work demonstrates effective application of most concepts/principles covered in the chapter.
	•	Work thoroughly explains most answers and calculations.
	•	Solutions are calculated with insignificant errors.
70-79%	•	Assigned exercises/problems are mostly complete.
	•	Work demonstrates effective application of some concepts/principles covered in the chapter.
	•	Work explains some answers and calculations.
	•	Solutions are calculated with significant errors.
60-69%	•	Assigned exercises/problems are fairly complete.
	•	Work demonstrates effective application of a few concepts/principles covered in the chapter.
	•	Work explains a few answers and calculations.
	•	Solutions are calculated with significant errors.
0-59%	•	Assigned exercises/problems are less than 50% complete.
	•	Work does not demonstrate effective application of the concepts covered in the chapter.
	•	Work submitted does not thoroughly explain answers and calculations.
	•	Solutions are not calculated or are calculated with significant errors.

 

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