Author Question: Tom purchased Hampton Industries Inc. stock for 14.65 and sold it 6 months later for 17.38 after ... (Read 53 times)

ericka1 · **on:** Jul 10, 2018

Tom purchased Hampton Industries Inc. stock for 14.65 and sold it 6 months later for 17.38 after receiving a 0.25 dividend. What Tom's holding period return (HPR), Annual Percentage Rate (APR), and Effective Annual Rate (EAR)?

A) 20.34, 40.68, 9.70
B) 18.63, 37.27, 40.74
C) 17.15, 34.29, 37.23
D) 20.34, 40.68, 44.82

Question 2

You purchased 100 shares of stock for 5 per share. After holding the stock for 8 years and not receiving any dividends, you sell the stock for 42 per share. What are the holding period and annual return on this investment?

A) 920, 41.63
B) 740, 30.48
C) 625, 27.66
D) 185, 14.42

aliotak · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: D
Explanation: D) HPR = = = 20.34,
APR = = = 40.68, EAR = (1 + HPR)(1/n) - 1 = (1.2034)(2) - 1 = 44.82.

In this case, n =0.5 years.

Answer to Question 2

Answer: B
Explanation: B) HPR = = (42 - 5)/5 = 740
EAR = (1 + hpr) (1/n) - 1 = (1+7.4)(1/8) - 1 = 30.48.