Question

Given the following price and dividend information:

A. calculate the holding period return. (Round to 4 decimals)

B. calculate the $1 investment equivalent. (Round to 4 decimals)

C.calculate the probability of losing money. (Round to 4 decimals)

Year	Price	Dividend
0	50.72
1	43.54	1.75
2	49.22	2.10
3	51.30	2.20
4	52.45	2.50
5	56.35	2.75

Answer 1

A) Holding period return = Income during the holding period + (End of period value- Initial period value)

Holding period return in % = (Income during the holding period + (End of period value- Initial period value)) / Initial value

Here income is the dividends

Holding period return = (1.75+2.10+2.20+2.50+2.75) + (56.35 - 50.72) = $16.9300

Holding period return in % = $16.93*100/50.72 = 33.3793%

B) $1 investment equivalent is $1 * holding period return in %

Hence, $1 investment equivalent = $1.3338

C)

Year	Price	Dividend	Price + Dividend
0	50.72
1	43.54	1.75	45.29
2	49.22	2.1	51.32
3	51.3	2.2	53.5
4	52.45	2.5	54.95
5	56.35	2.75	59.1

An investor loses money if the Price+dividend is less than the investment value of 50.72 at the end of the year

Here, out of the 5 years, there is 1 instance in which the value is lesser than 50.72

Hence the probability of losing money = 1/5 = 0.2000