You have decided to purchase $20,000 worth of each of the securities listed belo

ID: 2595461 • Letter: Y

Question

You have decided to purchase $20,000 worth of each of the securities listed below for your portfolio. Which should you park in your regular IRA.

1. Google stock price=136, dividend =0, expected return= 15%

2. 500 index Admiral shares Mutual fund price= $243, Dividend 1.85%, expense ratio=.04%, expected return=12%

3. Royal Dutch Shell price =$63, dividend= $3.76 Dividend yield= 5.9%, Expected Return = 10%

4. Microsoft Bonds, YTM=9%, Price =$993, current yield=9.6%, Maturity= 20 Years.

Calculation of total return that the investor will get:-

1) Total return - Expected return + Dividend = $20.4 (136*15%)

2) Total return- Dividend+ Expected return- Expenses =4.49+29.16-0.097=$ 33.553

# Dividend = 243*1.85% = 4.49

Expected return = 243*12% = 29.16

Expense = 243*0.04%= 0.097

3) Total return = Dividend +. Expected return = 3.76+ 6.3 = 10.06

4) Total return = Dividend + YTM = 0+ 89.37 = $ 89.37

So clearly it can be seen that option 4 has more returns:- therefore the correct answer is B.4

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