Reference no: EM132150847

Question: 1. On December 5, 2007, the common stock of Google, Inc. (GOOG) was trading  at $698.51. One year later, the shares sold for $301.99. Google has  never paid a common stock dividend. What rate of return would you have  earned on your investment had you purchased the shares on December 5,  2007? The rate of return you would have earned is what percent?

2. Syntex is considering an investment in one of two stocks. Given the  information that follows, which investment is better based on the risk  (the standard deviation) and return? Given the information in the table,  what percent is the rate of return for Stock B?

Syntex is considering an investment in one of two stocks. Given the  information that follows, which investment is better based on the risk  (the standard deviation) and return? Given the information in the table,  what percent is the rate of return for Stock B?

             Stock A                                           Stock B

Probability           Return                 Probability            Return

0.20                     10%                    0.10                   -7%

0.60                     16%                    0.40                   5%

0.20                     21%                    0.40                   13%

                                                     0.10                   20%

3. The common stock of Plaxo Enterprises had a market price of $9.45 on the  day you purchased it just 1 year ago. During the past year, the stock  paid a dividend of $1.43 and closed at a price of $11.66. What rate of  return did you earn on your investment in Plaxo's stock? The rate of  return you earned on Plaxo's stock is what percent?

4. Caswell Enterprises had the following end-of-year stock prices over the last five years and paid no dividends.

  Time     Caswell 

  1              $12

  2              $9

  3              $7

  4              $6

  5              $8

1. Calculate the average rate of return for each year from the above information.

2. What is the arithmetic average rate of return earned by investing in Caswell's stock over this period?

3. What is the geometric average rate of return earned by investing in Caswell's stock over this period?

4. Considering  the beginning and ending stock prices for the five-year period are the  same, which type of average rate of return best describes the annual  rate of return earned over the period (arithmetic or geometric)?

5. The annual rate of return at the end of year 3 is what percent?