Chapter 10 Problems
1. You buy a stock for $20. After a year the price rises to $25 but falls back to $20 at the end of the second year. What was the average percentage return and what was the true annualized return?
2. The S&P 500 declined 38.49 percent during 2008, its third-worse performance in history. (The largest declines were 47.07 percent and 38.59 percent and occurred during 1931 and 1937, respectively.) What percentage increase is necessary to recoup the 38.49 percent loss?
3. You make an investment and the annual returns are as follows:
|
Year
|
Return
|
|
1
|
25%
|
|
2
|
3
|
|
3
|
-18
|
|
4
|
-10
|
|
5
|
15
|
The average annual return is 3 percent. What is the true annualized return?
4. Given the following information concerning four stocks,
|
|
Price
|
Number of shares
|
|
Stock A
|
$10
|
100,000
|
|
Stock B
|
17
|
50,000
|
|
Stock C
|
13
|
150,000
|
|
Stock D
|
20
|
200,000
|
a) Construct a simple price-weighted average, a value-weighted average, and a geo metric average.
b) What is the percentage increase in each average if the stocks prices become:
I. A: $10, B: $17, C: $13, D: $40
II. A: $10, B: $34, C: $13, D: $20?
c) Why were the percentage changes different in (i) and (ii)?
Book: Mayo, Investments: An Introduction (with Stock-Trak Coupon), 12th ed., South-Western College Pub, ISBN 9781305638419.