ESSENTIALS OF INVESTMENTS>LL<+CONNECT
11th Edition
ISBN: 9781264001026
Author: Bodie
Publisher: MCG
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Chapter 1, Problem 21PS
The average rate of
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Suppose that the value of an investment in the stock market has increased at an average compound rate of about 5% since 1904. It is now 2016
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Chapter 1 Solutions
ESSENTIALS OF INVESTMENTS>LL<+CONNECT
Ch. 1 - Prob. 1PSCh. 1 - Prob. 2PSCh. 1 - Prob. 3PSCh. 1 - Prob. 4PSCh. 1 - Prob. 5PSCh. 1 - Prob. 6PSCh. 1 - For each transaction, identify the real and/or...Ch. 1 - Prob. 8PSCh. 1 - Lanni Products is u start-.up computer software...Ch. 1 - Reconsider Lanni Products from Problem 9. (LO 1-2)...
Ch. 1 - Prob. 11PSCh. 1 - Examine the balance sheet of commercial banks in...Ch. 1 - Prob. 13PSCh. 1 - Prob. 14PSCh. 1 - Prob. 15PSCh. 1 - Prob. 16PSCh. 1 - Why would you expect securitization o take place...Ch. 1 - Prob. 18PSCh. 1 - Give an examp1e of three financial intermediaries,...Ch. 1 - Firms raise capital from investors by issuing...Ch. 1 - The average rate of return on investments in large...Ch. 1 - Prob. 22PSCh. 1 - Prob. 1WMCh. 1 - Prob. 2WMCh. 1 - Prob. 3WMCh. 1 - Prob. 4WM
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- 1. Present value is the value today of a future cash flow or series of cash flows. Discounting is the process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding. Suppose a U.S. government bond promises to pay $2,249.73 three years from now. If the going interest rate on three-year government bonds is 4%, how much is the bond worth today? How would your answer change if the bond matured in 5 years rather than 3? What if the interest rate on the 5-year bond was 6% rather than 4%? How much would $1,000,000 due in 100 years be worth today if the discount rate was 5%? if the discount rate was 20%? 2. A dollar in hand today is worth more than a dollar to be received next year. Suppose you currently have $2,000 and plan to purchase a 3-year certificate of deposit (CD) that pays 4% interest compounded annually. How much will you have when the CD matures? How would your answer change if the interest rate were 5% or 6% or 20%?arrow_forwardNeed answer the general accounting question not use aiarrow_forwardDuring the year Honda Motor Company shares went from ¥9,010 to ¥11,210, while paying a dividend of ¥60. At the same time, the exchange rate went from $1 = ¥145 to $1 = ¥120. What was the total dollar return, in percent, on Toyota stock for the year? Explain in not more than three sentences whether the return was driven more by the stock market or by the exchange rate?arrow_forward
- Question 9, please help. Thank you!arrow_forward2.) One year ago you bought the common stock of Taiho at ¥2000 in Tokyo Stock Exchange. The price increased up ¥2100 today. You received a dividend of ¥120 per share during the period. The exchange rate was ¥100 = $1 when you bought the stock and it changed to ¥80 = $1 today. Calculate the realized dollar rate of return on the stock for the year. A.) 34.87%B.) -36.32% C.) -24.65%D .) 38.75% E.) 42.65%arrow_forwardAssume that the consensus required rate of return on common stocks is 13 percent. In addition, you read in Fortune that the expected rate of inflation is 6 percent and the estimated long-term real growth rate of the economy is 3 percent. What interest rate would you expect on U.S. government T-bills? Round your answer to two decimal places.arrow_forward
- Calculating the geometric and arithmetic average rate of return) Marsh Inc. had the following end-of-year stock prices over the last five years and paid no cash dividends: Time Marsh 1 $11 2 11 3 18 4 9 5 11 (Click on the icon in order to copy its contents into a spreadsheet.) a. Calculate the annual rate of return for each year from the above information. b. What is the arithmetic average rate of return earned by investing in Marsh's stock over this period? c. What is the geometric average rate of return earned by investing in Marsh's stock over this period? d. Considering the beginning and ending stock prices for the five-year period are the same, which type of average rate of return (the arithmetic or geometric) better describes the average annual rate of return earned over the period? Question content area bottom Part 1 a. The annual rate of return at the end of year 2 is enter your…arrow_forwardBased on the $10,000 drop in market value outlined in (5) to $30,000, what is the % gain/loss on your initial deposit? (5) You purchase $40,000 worth of stock by borrowing $20,000 from Morgan Stanley and paying $20,000 yourself. If the market value drops by $10,000, what is the remaining equity in your account?arrow_forwardSuppose you own an investment that had a total nominal return of 10.7% last year. If the inflation rate last year was 3.7%, what was your real return (in percent)? (Hint - think of economist Irving Fisher, how would Fisher have answered this question by doing an exact calculation?). . .arrow_forward
- 2. Let i denote the nominal interest rate, r denote the real interest rate, and INF denote inflation. Consider the same values of i, r, high inflation, and low inflation as in problem 1 above. For TIPS and regular Treasury bond purchases, an individual has allocated $10,000 to invest. a) Solve for the all-TIPS bundle of real wealth. That is, if the individual invests all $10,000 in TIPS, what are the values of WINF and Wlow? b) Solve for the all-regular-Treasury bonds bundle of real wealth. That is, if the individual invests all $10,000 in regular Treasury bonds, what are the values of WINF and Wlow?arrow_forwardYou purchased a stock at a price of $24. A year later the stock is worth $29, and during the year it paid $1.0 in dividends. What was the rate of return you earned on this investment? Show your answer in percent (but without the percent sign), and to one decimal place. E.g. 4.67% should be inputted as 4.7arrow_forwardSpike earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500, a measure of the overall market, only returned an average of 13.9 percent. Explain how this can occur if the stock market is efficient.arrow_forward
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