Question

1)

A) At the beginning of last year, you invested $4000 in 80 shares of the Chang Corp. During the year, chang paid dividends of $5 per share.
At the end of the year, you sold the 80 shares for $59 a share. Compute your total HPY on these shares and indicate how much was due to the price change
and how much was due to the dividend income
ANSWER FOR A:

=[ $5 + (59 - 50)] / 50

= 0.28 or 28%

Total HYP = 28%

Assuming there was no dividend , HYP due to price change :

= (59-50) / 50 = 0.18 or 18%

Assuming there was no price change and only dividends were received :

= 5/ 50 =10%

B) February 1, you bought 100 shares of stock in the Fr corporation for $34 a share and a year later you sold it for $39 a share.
During the year, you received a cash dividend of €1,5 a share . Compute your HPR and HPY on this Fra stock investment.
C) On august 15, you purchased 100 shares of stock in the cara cotton company at $65 a share and a year later you sold it for $61 a share.
During the year, you received dividends of $3 a share. Compute your HPR and HPY on your investiment in Cara cotton.
D) The rates of return computed in A,B AND C are nominal rates of return. Assuming that the rate of inflataion during the year was 4 percent, compute
the real rates of return on these investments. Compute the real rates of return if the rate of inflation was 8 percent.

Answer 1

B:

HPY = (Dividend+Selling price- Initial cost)/Initial cost

= (1.5+39-34)/34

=19.12%

C:

HPY = (Dividend+Selling price- Initial cost)/Initial cost

= (3+61-65)/65

=-1.54%

D:

At 4% Inflation

Using FISHER Equation

(1 + nominal rate) = (1 + real rate) x (1 + inflation rate)

Real rate = (1 + nominal rate)/ (1 + inflation rate) -1

Real rate of A = (1+0.28)/(1+0.04) -1 =23.08%

Real rate of B = (1+0.1912)/(1+0.04) -1 = 14.54%

Real rate of C = (1- 0.0154)/(1+0.04) -1 = -5.33%

At 8% Inflation

Real rate of A = (1+0.28)/(1+0.08) -1 =18.52%

Real rate of B = (1+0.1912)/(1+0.08) -1 =10.3 %

Real rate of C = (1- 0.0154)/(1+0.08) -1 = -8.83%