MBA January Intake HEC Paris

Financial Markets Philippe Henrotte

Homework of Lecture 1
Rates & Returns
Ishan ANAND

answers to be submitted electronically on

www.henrotte.eu
before midnight Monday 3 February 2020

For Questions 3, 4, 5 and 6, answers in percentage must be entered as numbers with four
decimal precision. If your answer is for instance 12.34%, you should enter 0.1234 being
careful to use the dot as the decimal mark.

Problem 1. Return (3 points)

You invested in a stock a year ago when the share price was EUR 15.00. The net total
return over the year was 11.86% and the company has distributed a dividend of EUR 0.78
per share last year.

Question 1. (1 point) What is the current share price assuming that the price is rounded
to the nearest cent? Give your answer in Euro with two decimal precision.

Question 2. (1 point) You invested EUR 150,000 a year ago in the stock. How much
dividend did you receive from the company? Give your answer rounded to the nearest
Euro.

Question 3. (1 point) What was the capital gain rate on your investment in the stock last
year?

Problem 2. Compounding (2 points)

Question 4. (1 point) You invest USD 40,663 for ten years and you receive ten years later
USD 184,282. What is the annualized return of your investment?

Question 5. (1 point) You invest CHF 500,000 for one year at the annualized rate of 5.60%
and you then reinvest the proceed for six months at the annualized rate of 8.00%. Which
annualized return have you obtained over one year and a half?

Problem 3. Effective Annual Rate (1 point)

Question 6. (1 point) A bank proposes an investment for two years with an annual
percentage rate of 3.23% compounded quarterly. What is the effective annual rate (or
annually compounding rate) corresponding to this investment?

1
 Problem 4. Real Return (1 point)

Question 7. (1 point) You invested GBP 150,000 for 20 years in a portfolio which delivered
a real annually compounded return of 6.20%. Knowing that the annually compounded
inflation for the British pound over the period was 2.40%, what is the value of your portfolio
after 20 years? Give your answer rounded to the nearest pound.