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Rate of Return

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Question

Consider the following scenario analysis:    Rate of Return

Scenario Probability Stocks Bonds

Recession 0.20 -4% 16%

Normal economy 0.50 18  9 

Boom 0.30 29  6 

a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?

  • No
  • Yes

b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

 
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shares

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Question

You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at

year-end.

a. What is the rate of return on your investment if the end-of-year stock price is (i) $38; (ii) $40; (iii) $46? (Enter your answers as a whole percent.)

b. What is your real (inflation-adjusted) rate of return if the inflation rate is 3% stock price is (i) $38; (ii) $40; (iii) $46? (Enter your answers as a percent rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Please explain this question

 
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firm’s sales

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Question

If a firm’s sales increase by 12%, and it has no spare capacity, it must increase fixed assets by at least:

 
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loan

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Question

If you borrow $2,600 and agree to repay the loan in six equal annual payments

at an interest rate of 11%, what will your payment be? 

Amount of payment $

What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Amount of payment $

 
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