You purchased a bond for $870 one year ago.

Today, you receive your only interest payment for the year
of $70. The bond can currently be sold for $925. What is your total percentage return on
investment? Ignore tax effects.
A) 6.3%
B) 8.1%
C) 14.4%
D) 16.5%
E) 20.8%
Answer: C

12. You purchased 500 shares of preferred stock on January 1, 2002, for $85 per share. The stock
pays an annual dividend of $12 per share. On December 31, 2002, the market price is $91 per
share. What is your total dollar return for the year?
A) $ 3,000
B) $ 4,500
C) $ 6,000
D) $ 9,000
E) $12,000
Answer: D
Response: 500 ($91 - 85 + 12) = $9,000

13. You purchased a bond on January 1, 2002, for $1,065. The bond has a $1,000 face value, a 10%
annual coupon, and can be sold for $975 on December 31, 2002. What is your percentage return
on investment for the year?
A) –4.1%
B) 0.9%
C) 4.6%
D) 8.3%
E) 12.5%
Answer: B
Response: R = [($975 - 1,065) / 1,065] + (100 / 1,065) = .0094

14. You purchased 500 shares of preferred stock on January 1, 2002, for $50 per share. The stock
pays an annual dividend of $8 per share. On December 31, 2002, the market price is $54 per
share. What is your percentage return on investment for the year?
A) 4%
B) 8%
C) 16%
D) 20%
E) 24%
Answer: E
Response: R = [($54 - 50) / 50] + (8 / 50) = .24

Use the following to answer questions 15-18:

You purchase 800 shares of stock at a price of $20 per share. One year later, the shares are selling for $23
per share. In addition, a dividend of $2 per share is paid at the end of each year.

15. What is the total dollar return for the investment?

A) $1,600
B) $2,400
C) $4,000
D) $6,800
E) $8,000
Answer: C
Response: first, you made 800 times your $3 (23-20) capital gain or 800 x 3 or $2400
Second, you made the dividend, or 800 times $2 equals $1,600. Add up the capital gain of $2,400
and the dividend of $1,600 and you get 2,400 + 1,600 or $4,000