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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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Explanation:

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This situation is an example of cross Price elasticity of Demand

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Match the departments with task that they perform in the fulfillment process. Sales Accounting Warehouse
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C. Prepares and sends the invoice

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Bull'sEye sells gift cards redeemable for Bull'sEye products either in-store or online. During 2016, Bull'sEye sold $2,000,000 o
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Answer:

b) $1,950,000

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4 0
2 years ago
You are scheduled to receive annual payments of $11,100 for each of the next 24 years. Your discount rate is 10 percent. What is
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Answer:

The difference in the present value is $988.32.

Explanation:

The difference in the present value can be calculated using the following 3 steps:

Step 1: Calculation of the present value if you receive these payments at the beginning of each year

This can be calculated using the formula for calculating the present value (PV) of annuity due given as follows:

PVA = P * ((1 - (1 / (1 + r))^n) / r) * (1 + r) .................................. (1)

Where;

PVA = Present value if you receive these payments at the beginning of each year = ?

P = Annual payments = $11,100

r = interest rate = 10%, or 0.10

n = number of years = 24

Substitute the values into equation (1), we have:

PVA = $11,100 * ((1 - (1 / (1 + 0.10))^24) / 0.10) * (1 + 0.10)

PVA = $10,871.54

Step 2: Calculation of the present value if you receive these payments at the end of each year

This can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PVO = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (2)

Where:

PVO = Present value if you receive these payments at the end of each year = ?

Other values are as defined in Step 1 above.

Substitute the values into equation (2), we have:

PVO = $11,100 * ((1 - (1 / (1 + 0.10))^24) / 0.10)

PVO = $9,883.22

Step 3: Calculation of the difference in the present value

This can be calculated as follows:

Difference in the present value = PVA - PVO = $10,871.54 - $9,883.22 = $988.32

3 0
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