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Multiple Choice: Nancy bought 50 shares of ABC stock for $50 per share. She made additional
purchases at the end of the each of the following years:
Year 1: 10 shares at $52 per share
Year 2: 10 shares at $53 per share
Year 3: 10 shares at $45 per share
ABC stock has not paid any dividends during her holding period. At the endof the fourth year,
the stock is trading for $55 per share. What is Nancy's return over th past 4 years of ABC stock
(assume she sells the stock for the current trading price)?
A - 2.95%
B - 3.25%
C - 4.65%
D - 5.00%
Solution
Calculation of Nancy's return over the past 4 years of ABC stock :
Year
Investment made
Holding Period (Years)
Sale value
Profit
Holding Period Return
Average Return
Investment Weight
Weighted return
A
B
C
D = C-A
E = D/A
F= E/B
G = A/4000
F*G
Year 0
2500
4
2750
250
10.00%
2.50%
62.50%
1.56%
(50 Shares * $50)
(50 Shares * $55)
Year 1
520
3
550
30
5.77%
1.92%
13.00%
0.25%
(10 Shares * $52)
(10 Shares * $55)
Year 2
530
2
550
20
3.77%
1.89%
13.25%
0.25%
(10 Shares * $53)
(10 Shares * $55)
Year 3
450
1
550
100
22.22%
22.22%
11.25%
2.50%
(10 Shares * $45)
(10 Shares * $55)
Average return on investment =
4.56%
Calculation of Nancy's return over the past 4 years of ABC stock :
Year
Investment made
Holding Period (Years)
Sale value
Profit
Holding Period Return
Average Return
Investment Weight
Weighted return
A
B
C
D = C-A
E = D/A
F= E/B
G = A/4000
F*G
Year 0
2500
4
2750
250
10.00%
2.50%
62.50%
1.56%
(50 Shares * $50)
(50 Shares * $55)
Year 1
520
3
550
30
5.77%
1.92%
13.00%
0.25%
(10 Shares * $52)
(10 Shares * $55)
Year 2
530
2
550
20
3.77%
1.89%
13.25%
0.25%
(10 Shares * $53)
(10 Shares * $55)
Year 3
450
1
550
100
22.22%
22.22%
11.25%
2.50%
(10 Shares * $45)
(10 Shares * $55)
Average return on investment =
4.56%

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Multiple Choice Nancy bought 50 shares of ABC stock for $50 per sha.pdf

  • 1. Multiple Choice: Nancy bought 50 shares of ABC stock for $50 per share. She made additional purchases at the end of the each of the following years: Year 1: 10 shares at $52 per share Year 2: 10 shares at $53 per share Year 3: 10 shares at $45 per share ABC stock has not paid any dividends during her holding period. At the endof the fourth year, the stock is trading for $55 per share. What is Nancy's return over th past 4 years of ABC stock (assume she sells the stock for the current trading price)? A - 2.95% B - 3.25% C - 4.65% D - 5.00% Solution Calculation of Nancy's return over the past 4 years of ABC stock : Year Investment made Holding Period (Years) Sale value Profit Holding Period Return Average Return Investment Weight Weighted return A B C D = C-A E = D/A F= E/B G = A/4000 F*G Year 0 2500
  • 2. 4 2750 250 10.00% 2.50% 62.50% 1.56% (50 Shares * $50) (50 Shares * $55) Year 1 520 3 550 30 5.77% 1.92% 13.00% 0.25% (10 Shares * $52) (10 Shares * $55) Year 2 530 2 550 20 3.77% 1.89% 13.25% 0.25% (10 Shares * $53) (10 Shares * $55) Year 3 450 1 550 100
  • 3. 22.22% 22.22% 11.25% 2.50% (10 Shares * $45) (10 Shares * $55) Average return on investment = 4.56% Calculation of Nancy's return over the past 4 years of ABC stock : Year Investment made Holding Period (Years) Sale value Profit Holding Period Return Average Return Investment Weight Weighted return A B C D = C-A E = D/A F= E/B G = A/4000 F*G Year 0 2500 4 2750 250 10.00% 2.50% 62.50% 1.56% (50 Shares * $50)
  • 4. (50 Shares * $55) Year 1 520 3 550 30 5.77% 1.92% 13.00% 0.25% (10 Shares * $52) (10 Shares * $55) Year 2 530 2 550 20 3.77% 1.89% 13.25% 0.25% (10 Shares * $53) (10 Shares * $55) Year 3 450 1 550 100 22.22% 22.22% 11.25% 2.50% (10 Shares * $45) (10 Shares * $55) Average return on investment = 4.56%