1. One year ago, you purchased 200 shares of a stock at a price of $54.18 a shar

Question

1. One year ago, you purchased 200 shares of a stock at a price of $54.18 a share. Today, you sold those shares for $40.25 a share. During the past year, you received total dividends of $164 while inflation averaged 4.2 percent. What is your approximate real rate of return on this investment?
A. -24.20 percent
B. -28.40 percent
C. -20.00 percent
D. 20.00 percent
E. 24.20 percent

2 . A stock had annual returns of 3.6 percent, -8.7 percent, 5.6 percent, and 11.1 percent over the past four years. Which one of the following best describes the probability that this stock will produce a return of 20 percent or more in a single year?
A. less than 0.1 percent
B. less than 0.5 percent but greater than 0.1 percent
C. less than 1.0 percent but greater the 0.5 percent
D. less than 2.5 percent but greater than 1.0 percent
E. less than 5 percent but greater than 2.5 percent

3.  A stock has returns of 18 percent, 11 percent, -21 percent, and 6 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year?
A. -13.56 to 20.56 percent
B. -24.60 to 31.80 percent
C. -30.62 to 37.62 percent
D. -47.68 to 54.68 percent
E. -71.73 to 71.73 percent

Explanation / Answer

1)Nominal return = [$40.25 - $54.18 + ($164/200)]/$54.18 = -0.2420

Approximate real return = -0.2420 - 0.042 = -28.40 percent.(B)

2)B. less than 0.5 percent but greater than 0.1 percent

3)Average return = (0.18 + 0.11 - 0.21 + 0.06)/4 = 0.035

s = (0.18 - 0.035)2 + (0.11 - 0.035)2 + (-0.21 - 0.035)2 + (0.06 - 0.035)2] = .170587
95% probability range = 0.035

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