Question
Comparison of returns Part A : Baker BaseballCards, Inc. originally purchased the rookie card ofHammerin' Hank Aaron for $27.00. After holding the card for 6
Comparison of returns
Part A :
Baker BaseballCards, Inc. originally purchased the rookie card ofHammerin' Hank Aaron for $27.00. After holding the card for 6 years, Baker Baseball Cards auctioned the card for $216.00. Anothercompany, Bohenick ClassicAutomobiles, restores and rebuilds old classic cars. This company purchased and restored a classic 1957 Thunderbird convertible 5 years ago for $7,900.00. Today atauction, the car sold for $55,300.00.
a.What are the holding period returns of theseinvestments?
b.What are the simple annual returns on theseinvestments?
c.What are the effective annual returns on theseinvestments?
d.Which investment had the higher holding periodreturn? Which had the higher simple annualreturn? Which investment had the higher effective annualreturn?
Part B :
WG Investors is looking at three different investment opportunities. Investment one is afive-year investment with a cost of $300 and a promised payout of $600 at maturity. Investment two is aseven-year investment with a cost of $300 and a promised payout of $810. Investment three is aten-year investment with a cost of $300 and a promised payout of $1,350. WG Investors can take on only one of the three investments. Assuming that all three investment opportunities have the same level ofrisk, calculate the effective annual return for eachinvestment, and select the best investment choice.
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