Question

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

Answer 1

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