1. You purchased 100 shares of CSCO stock last year for $35.84. During the last

Question

1. You purchased 100 shares of CSCO stock last year for $35.84. During the last 12 months, the company paid $1.28 in dividends and the stock price when up to $43.62. What is your holding period return in nominal term and percentage?

2. You own 500 shares of AAPL stock and the company paid $2.98 in dividend last year. How much did you get in dividend payment?

3. Given the expected return of 12% for stocks and 6% for bonds, your retirement account is split between those two asset classes, how much money would have when you retire if you put in $5,000 each year and you work for 40 years? How much would you have if you put all your money in bonds? Or all your money in stocks?

Explanation / Answer

1:HPR= (P1-P0)+Dividend/ Initial investment

Returns=(43.62-35.84)*100 + 1.28*100 = $906

HPR in % terms= 906/ (35.84*100)= 25.28%

2: Amount of dividend received= 500*2.98 = $1490

3: If all money is put in stock

FV of annuity = A*((1+r)^n-1)/r

= 5000*(1.12^40 -1)/0.12= 3,835,457

If all money is put in bonds

FV = 5000*(1.06^40 -1)/0.06= 773,809.8

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