Question

1a.

Your first investment is Stock A. 3 years ago you bought Stock A from $20 and sold it now at $25. Over the three years you received a cash dividend of $3.

Your second investment is Stock B. 4 years ago you bought Stock B from $31 and sold it now at $40. Over the four years you received a cash dividend of $5.

Which one is a better investment?

		Stock A
		Stock B
		You are indifferent because both Stock A and Stock B had the same financial performance.
		None

1b. Preferred stockholders have voting rights

True

False

1c. As the volatility of an investment increases, the standard deviation of that investment increases as well.

True

False

Answer 1

1.a.C. You are indifferent because both stock A and stock B had same financial performance.

working;

return on investment = (sale price + dividends - purchase price) / purchase price *100

stock A

total dividends received = $3 *3 years=>$9

=>(25+9-20) / 20*100

=>70%

average annual return = 70%/3 years

=>23.3%.

now,

stock B.

total dividends received = $5*4 years =>$20

.

=> (40+20-31)/31 *100

=>93.55%.

average annual return =93.55% / 4 years

=>23.3%.

1b. False.

Preferred stockholders do not have voting rights.

Common stock holders will have voting rights.

1c.True.

Volatility and standard deviation are closely related, so as the volatility increases the standard deviation increases.