Question

Do not answer using a percent sign, a dollar sign or with a number containing commas. For the questions involving rates, you can answer as a percent (for example 10) or as a decimal (for example 0.1).

1.13

Assume you purchased a stock for $100 today and it went up by 90% in the first year and dropped by 50% the second year. Assume no dividends. How much is your stock worth after the second year?

1.14

Assume you purchased a stock for $100 today and it went up by 90% in the first year and dropped by 50% the second year. Assume no dividends. What is your holding period return?

1.15

Assume you purchased a stock for $100 today and it went up by 90% in the first year and dropped by 50% the second year. Assume no dividends. What is your average annual growth rate?

Answer 1

1.13. Worth of the stock after 2 year=((purchase price( 1+ first year appreciation ))X (1-second year depreciation)

= 100(1+.9)=$190 after 1st year

= 190(1-.5)=$95 after 2nd year

Stock worth after second year will be $95 .

1.14. holding period return= (95-100)/100

=-5%

Investor made a holding period loss of -5%

1.15. average annual growth rate= -2.469% after we will be accepting the holding period losses.

Average annual growth rate will be in negative and will be -2.469%