MATH SOLVE

5 months ago

Q:
# 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 AStock BBondStock A and Stock B

Accepted Solution

A:

Answer : Stock AXavier purchased 125 shares of Stock A at $96 per shareAfter one year , Stock A is worth $98 per share percentage return = [tex] \frac{P_{1} - P_{0}}{P_{0}} [/tex][tex] P_{0} [/tex] - Initial stock price[tex] P_{1} [/tex] - Final stock priceStock A percentage return = [tex] \frac{98 - 96}{96} [/tex] = 2/ 96 = 2.08%Stock B percentage return = [tex] \frac{155 - 150}{150} [/tex] = 5/ 150 = 3.3%Given, $1000 bond with a 4.25% coupon for $1075Coupn amount for bond = [tex] \frac{4.25}{100} [/tex] * 1000 = 42.5Bond percentage return= coupon amount / 1075[tex] \frac{42.5}{1075} [/tex] = 3.95%Stock A has the lowest rate of return