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.

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