Question

In: Finance

Investment Vehicle X Y Cash received 1st quarter $0.96 $0.00 2nd quarter $1.16 $0.00 3rd quarter...

Investment Vehicle
X Y
Cash received
1st quarter $0.96 $0.00
2nd quarter $1.16 $0.00
3rd quarter $0.00 $0.00
4th quarter $2.34 $2.19
Investment value
Beginning of year $30.27 $54.91
End of year $27.79 $55.57

Calculate a​ one-year holding period return​ (HPR) for the following two investment​ alternatives: Which investment would you​ prefer, assuming they are of equal​ risk? Explain. The HPR for investment X is nothing​%. ​ (Enter as a percentage and round to two decimal​ places.)

Solutions

Expert Solution

X      
investment beginning value=   $30.27  
investment closing value=   $27.79  
Cash received during year = 0.96+1.16+0+2.34=   $4.46  


Holding period return = (Cash received + Ending value - Beginning value)/Beginning value * 100      
=(4.46+27.79-30.27)/30.27* 100      
=6.54%      
So Holding period Return of Investment X is   6.54%  
      
Y      
investment beginning value= $ 54.91  
investment closing value= $55.57  
Cash received during year = 0+0+0+2.19= $2.19  


Holding period return = (Cash received + Ending value - Beginning value)/Beginning value * 100      
=(2.19+55.57-54.91)/54.91* 100      
=5.19%      
So Holding period Return of Investment Y is   5.19%  
      
If both investment is equal Risky, Investment X will be preferred, as Holding period Return is more in case of Investment X      
      


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