Author Question: The first column of the following table describes the price movement of AOL Corporation stock over a ... (Read 101 times)

jenna1 · **on:** Jul 1, 2018

The first column of the following table describes the price movement of AOL Corporation stock over a five-year period. The second column gives the period's consumer price index.

Calculate the real value of the stock for each time period using year 5 as the base year. If you purchased 1,000 worth of AOL Corporation in year 1, what has happened to the purchasing power of your original 1,000 investment when you sell the stock in year 5? Year AOL CPI 1996 4.00 147.8 1997 3.84 155.3 1998 7.00 163.0 1999 37.00 165.4 2000 70.00 172.1

Question 2

Refer to Scenario 7.1. The total cost to produce 50 cookies is

A) 20
B) 25
C) 50
D) 60
E) indeterminate

amanda_14 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Year Real AOL Stock Price in 2000 Dollars
1996 4.66
1997 4.26
1998 7.39
1999 38.50
2000 70.00

The real value of a year 1996 dollar in 2000 is 172.1(1)/147.8 = 1.16. I would have bought 250 shares of AOL at 1996 prices (ignoring transaction costs) with the 1,000. The value of the stock in the year 2000 is (250(70)) = 17,500. The change in my purchasing power is
(17,500 - 1,160)/1,160 = 14.09. That is, my purchasing power from investing in the stock rises by 1,409.

Answer to Question 2

A