Question

Information about three securities appears next. Beginning-of-Year Price End-of-Year Price Interest/Dividend Paid Stock 1 $ 43.10 $ 47.35 $ 2.10 Stock 2 $ 1.85 $ 1.99 $ 0 Bond 1 $ 1,080 $ 1,108 $ 47.00 a. Assuming interest and d and dividends are paid annually, calculate the annual holding period return on each security. (Round your answers to 1 decimal place.)

	Annual Holding Period Return Stock 1 % Stock 2 % Bond 1 %

Answer 1

			Annual holding period return
Stock 1				14.7%
Stock 2				7.6%
Bond 1				6.9%
Working:
Annual holding period return	=	(D+(P1-P0))/P0	Where,
				D	=	Annual dividend
				P0	=	Price at beginning of year
				P1	=	Price at the end of year
So, Annual holding period return of:
Stock 1	=	(D+(P1-P0))/P0	Where,
	=	(2.10+(47.35-43.10))/43.10	D	=	$         2.10
	=	14.7%		P0	=	$       43.10
				P1	=	$       47.35
Stock 2	=	(D+(P1-P0))/P0	Where,
	=	(0.00+(1.99-1.85))/1.85	D	=	0
	=	7.6%		P0	=	$         1.85
				P1	=	$         1.99
Bond 1	=	(D+(P1-P0))/P0	Where,
	=	(47.00+(1108-1080))/1080	D	=	$       47.00
	=	6.9%		P0	=	$ 1,080.00
				P1	=	$ 1,108.00