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lys-0071 [83]
3 years ago
7

Lila purchased Hampton Industries Inc. stock for $18.35 and sold it 6 months later for $21.45 after receiving a $0.50 dividend.

What was her holding period return (HPR), Annual Percentage Rate (APR), and Effective Annual Rate (EAR)?
Business
1 answer:
Scorpion4ik [409]3 years ago
4 0

Answer:

HPR = 19.62 %

APR = 39.24 %

EAR = 43.09 %

Explanation:

a.Calculation of Holding Period Return :

The formula for calculating the holding period Return is

= ( Sale price + Dividend earned during the holding period – Purchase Price ) / Purchase Price

As per the information given in the question is

Purchase Price : $ 18.35

Sale price : $ 21.45

Dividend per share = $ 0.50

Applying the above values in the formula we have

= ( 21.45 + 0.50 – 18.35 ) / 18.35

= 3.60 / 18.35

= 0.196185 = 19.6185 %

= 19.62 % ( when rounded off to two decimal places )

Thus the HPY i.e., Holding period return is 19.62 %

b.Calculation of Annual Percentage Rate :

The formula for calculating the Annual Percentage Rate = Holding period return / n

Where n = Period of Investment / 12 months

We know that the period of Investment = 6 months

Thus n = 6 / 12 = 0.50

Holding Period Return = 19.62 %

Applying the above values in the formula we have

Annual Percentage Rate = 19.62 % / 0.50

= 39.24 %

Thus the Annual Percentage Rate = 39.24 %

c. Calculation of Effective Annual Return :

The formula for calculating the Effective annual rate = ( 1 + Return ) ( 1/n ) - 1

Where Return = Holding period return = 19.62 % = 0.1962

N = No. of years = ( 6 / 12 ) years = 0.5 years

Applying the above values in the formula we have

= ( 1 + 0.1962 ) ( 1 / 0.5 ) - 1

= ( 1.1962 ) 2 - 1

= 1.430894 – 1

= 0.430894 = 43.0891 %

= 43.09 % ( when rounded off to two decimal places )

Thus the Effective annual rate = 43.09 %

NOTE : The value of ( 1.1962 )2   has been calculated using the excel function =POWER(Number,Power). Thus =POWER(1.1962,2) = 1.430894

Thus we have :

HPR = 19.62 %   ; APR = 39.24 %   ; EAR = 43.09 %

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You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangement
Fed [463]

Answer:

Instructions are listed below.

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Giving the following information:

Option 1:

You can have $72,000 per year for the next two years

Option 2:

You can have $61,000 per year for the next two years, along with a $17,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month.

The interest rate is 9 percent compounded monthly.

To calculate the present value, we need to use the following formula:

PV= FV/(1+i)^n

First, we need to calculate the final value on both options:

FV= PV*(1+i)^n

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Option 1:

i= 0.09/12= 0.0075

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Year 2= 72,000*1.0075^12= 78,754.09

Total= 164,895.86

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Option 2:

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Year 2= 61,000*1.0075^12= 66,722.22

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3 0
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Consider the following information pertaining to OldWest's inventory:
kipiarov [429]

Answer:

$2,664

Explanation:

Generally Acceptable Accounting Principles requires that the closing inventory should be valued at lower of cost and Net realizable value.

Product     Quantity    Total Cost     Total Net Realizable Value

Revolvers      13           $126              $155

Spurs             22          $32               $27

Hats               9            $58               $48

Choosing Which one is lower for each product

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Revolvers      13           $126              $1,638

Spurs             22          $27               $ 594

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Total Closing Inventory Value = $1,638 + $594 + $432 = $2664

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