Question 1: An investor bought 100 shares of Venus Corporation common stock 1 year ago for $40 per share. She just sold the shares for $44 each, and during the year, she received four quarterly dividend checks for $40 each. She expects the price of the Venus shares to fall to about $38 over the next year. Calculate the investor's realized percentage holding period return.
Question 2: Suppose a Midwest Telephone and Telegraph (MTT) Company bond, maturing in 1 year, can be purchased today for $975. Assuming that the bond is held until maturity, the investor will receive $1,000 (principal) plus 6 percent interest (that is, 0.06 3 $1,000 5 $60). Determine the percentage holding period return on this investment.
Question 3:
a. National Telephone and Telegraph (NTT) Company common stock currently sells for $60 per share. NTT is expected to pay a $4 dividend during the coming year, and the price of the stock is expected to increase to $65 a year from now. Determine the expected (ex-ante) percentage holding period return on NTT common stock.
b. Suppose that 1 year later, NTT's common stock is selling for $75 per share. During the 1-year period, NTT paid a $4 common stock dividend.
Determine the realized (ex-post) percentage holding period return on NTT common stock.
c. Repeat (b) given that NTT's common stock is selling for $58 1 year later.
d. Repeat (b) given that NTT's common stock is selling for $50 1 year later.
Question 4:
Assume it is early 2003 and the following bond quotations appeared in the Wall Street Journal:
ConocoPhillips (COP) 5.900 Oct 15, 2032 95.972 6.200 90 30 88,510
Amerada Hess (AHC) 7.125 Mar 15, 2033 100.145 7.113 179 30 55,000
a. How much in annual interest payment would an investor in each of these bonds receive?
b. How much would you have to pay to buy one COP bond at the last price shown?
c. Why do you think the yield-to-maturity on the AHC bond is higher than the yield to maturity on the COP bond?