Chapter 12 Financial Planning Exercise 1 Ranking investments by expected returns What makes for a good...

Chapter 12
Financial Planning Exercise 1
Ranking investments by expected returns

What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Round the answers to two decimal places. Do not round intermediate calculations.

Buy a stock for $45 a share, hold it for 2 years, then sell it for $80 a share (the stock pays annual dividends of $3 a share).
%
Buy a security for $25, hold it for 2 years, then sell it for $65 (current income on this security is zero). Do not round intermediate calculations.
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Buy a 1-year, 10 percent note for $960 (assume that the note has a $1,000 par value and that it will be held to maturity). Do not round intermediate calculations.
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Solutions

Expert Solution

RANK 1 : b

RANK 2 : a

RANK 3 : c

jeff jeffy answered 1 year ago

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