BBA 3301, Financial Management
1. The common stock of Plaxo Enterprises had a market price of $9.45 on the day you
purchased it just 1 year ago. During the past year, the stock paid a dividend of $1.43 and
closed at a price of $11.66. What rate of return did you earn on your investment in
Plaxo's stock? The rate of return you earned on Plaxo's stock is what percent?
2. On December 5, 2007, the common stock of Google, Inc. (GOOG) was trading at
$698.51. One year later, the shares sold for $301.99. Google has never paid a common
stock dividend. What rate of return would you have earned on your investment had you
purchased the shares on December 5, 2007? The rate of return you would have earned is
3. Caswell Enterprises had the following end-of-year stock prices over the last five years
and paid no dividends.
•Calculate the average rate of return for each year from the above information..
•What is the arithmetic average rate of return earned by investing in Caswell's stock over
•What is the geometric average rate of return earned by investing in Caswell's stock over
•Considering the beginning and ending stock prices for the five-year period are the same,
which type of average rate of return best describes the annual rate of return earned over the
period (arithmetic or geometric)?.
•The annual rate of return at the end of year 3 is what percent?.
4. Syntex is considering an investment in one of two stocks. Given the information that
follows, which investment is better based on the risk (the standard deviation) and return?
Given the information in the table, what percent is the rate of return for Stock B?
Note: Reference: Titman, S., Keown, A. J., & Martin J. D. (2014). Financial management:
Principles and applications (12th ed.). Upper Saddle River, NJ: Pearson.
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