1.Jack hold a portfolio with the following securities: Security Investment Retur

Question

1.Jack hold a portfolio with the following securities:

Security

Investment

Return

Stock A

387,472

4.6%

Stock B

611,129

5.5%

Stock C

616,146

4.8%

Calculate the expected return of portfolio. Round the answers to two decimal places in percentage.

2. Mary purchased 160 shares of Harley Davidson Co stock at a price of $78.10 six months ago. She sold all stocks today for $80.81. During this period the stock paid dividends of $4.75 per share. What is Mary’s annualized holding period return (annual percentage rate)? Round the answers to two decimal places in percentage form.

3. You are considering the purchase of Crown Bakery inc common stock that just paid a dividend of $10.70 per share. You expect the dividend to grow at a rate of 3.51% per year indefinitely. You estimate that a required rate of return of 9.70% will be adequate compensation for this investment. What is the most that you would be willing to pay for the common stock if you were to purchase it today? Round the answer to two decimal places?

4. Use the following information about Rat Race Home Security, Inc to answer the questions:

Average selling price per unit $334

Variable cost per unit $196

Units sold 460

Fixed costs $7,915

Interest expense 14,754

Based on the data above, what will be the resulting percentage change in earnings per share of Rat Race Home Security, Inc if they expect operating profit to change -2.9 percent? (You should calculate the degree of financial leverage first)

5.Appliance for Less is a local appliance store. It costs this store $15.03 per unit annually for storage, insurance etc to hold microwave in their inventory. Sales this year are anticipated to be 234 units. Each order costs $67. The company is using Economic Order Quantity model in placing the orders. What is the average held during the year including safety stock if the store insists of a 6 day safety stock (assume 365 days a year)?

Security

Investment

Return

Stock A

387,472

4.6%

Stock B

611,129

5.5%

Stock C

616,146

4.8%

Explanation / Answer

1)

2) Annualized HPR = ((End Value - Initial Value) / Initial Value + 1 ) ^ ( 1 / Years ) - 1

= ((80.81 + 4.75 - 78.1)/78.1 +1))^(1/0.5) - 1 = 20%

3) Price = dividend * ( 1 + growth rate)/ (required rate of return - growth rate ) = 10.7 * (1 + .0351)/(.097 - .0351) = $ 178.926

Please ask remaining questions seperately

Security Investment Return Weight Weight* return Stock A 3,87,472 4.60% 0.239958 0.011038 Stock B 6,11,129 5.50% 0.378467 0.020816 Stock C 6,16,146 4.80% 0.381574 0.018316 Expected return = 0.050169

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