RAN IN G IN E STM E N TS B Y E X P E CTE D RE TURN S.

What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns.

a. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share).

b. Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero).

c. Buy a one-year, 5 percent note for $1,000

(assume that the note has a $1,000 par value and that it will be held to maturity).. LO1