Question

Information about three securities appears next. Beginning-of-Year Price End-of-Year Price Interest/Dividend Paid Stock 1 $ 42.60 $ 46.85 $ 1.60 Stock 2 $ 1.35 $ 1.46 $ 0 Bond 1 $ 1,030 $ 1,058 $ 42.00 a. Assuming interest and dividends are paid annually, calculate the annual holding period return on each security. (Round your answers to 1 decimal place.)

Answer 1

Stock 1 Annual holding period returns 13.73%

Stock 2 Annual holding period returns 8.15%

Bond 1 Annual holding period returns 6.80%

Step-by-step explanation:

Calculation to determine the annual holding period return on each security

Using this formula

Annual holding period return=(End of the year price-Beginning of year price +Interest or dividend paid)/(Beginning of year price )

Let plug in the formula

Stock 1 Annual holding period returns

Stock 1 Annual holding period returns=(46.85-42.60+1.60)/42.60

Stock 1 Annual holding period returns=5.85/42.60

Stock 1 Annual holding period returns=0.1373*100

Stock 1 Annual holding period returns=13.73%

Stock 2 Annual holding period returns=(1.46-1.35+0)/1.35

Stock 2 Annual holding period returns=0.11/1.35

Stock 2 Annual holding period returns=0.0815*100

Stock 2 Annual holding period returns=8.15%

Bond 1 Annual holding period returns =(1,058-1,030+42)/1,030

Bond 1 Annual holding period returns=70/1,030

Bond 1 Annual holding period returns=0.0679*100

Bond 1 Annual holding period returns=6.80% (Approximately)

Therefore the annual holding period return on each security will be :

Stock 1 Annual holding period returns 13.73%

Stock 2 Annual holding period returns 8.15%

Bond 1 Annual holding period returns 6.80%