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Last year, Xavier purchased 125 shares of Stock A at $96 per share, 30 shares of Stock B at $150 per share, and a $1000 bond with a 4.25% coupon for $1075. Xavier sold both stocks today. Stock A is worth $98 per share and Stock B has a value of $155 per share. Assuming neither stock paid a dividend, which investment has the lowest rate of return?

Stock A
Stock B
Bond
Stock A and Stock B

User Mamta
by
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1 Answer

6 votes

Answer : Stock A

Xavier purchased 125 shares of Stock A at $96 per share

After one year , Stock A is worth $98 per share

percentage return =
(P_(1) - P_(0))/(P_(0))


P_(0) - Initial stock price


P_(1) - Final stock price

Stock A percentage return =
(98 - 96)/(96) = 2/ 96 = 2.08%

Stock B percentage return =
(155 - 150)/(150) = 5/ 150 = 3.3%

Given, $1000 bond with a 4.25% coupon for $1075

Coupn amount for bond =
(4.25)/(100) * 1000 = 42.5

Bond percentage return= coupon amount / 1075


(42.5)/(1075) = 3.95%

Stock A has the lowest rate of return

User Nicoschl
by
7.9k points
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