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. Round the answers to two decimal places. Do not round intermediate calculations.
If you could please show the work, if not its fine. Thanks.
a. The return is computed as shown below:
= ( $ 80 - $ 45 ) / 3 + $ 3
= $ 14.67 Approximately
The average of buying and selling price is computed as follows:
= ( $ 80 + $ 45 ) / 2
= $ 62.5
So the approximate yield will be:
= $ 14.67 / $ 62.5
= 23.47% Approximately
b. The return is computed as shown below:
= ( $ 60 - $ 20 ) / 3
= $ 13.33 Approximately
The average of buying and selling price is computed as follows:
= ( $ 60 + $ 20 ) / 2
= $ 40
So the approximate yield will be:
= $ 13.33 / $ 40
= 33.33 % Approximately
c. The return is computed as follows:
= 12% x $ 1,000 + $ 1,000 - $ 940
= $ 180
Average of $ 1,000 and $ 940 will be:
= ( $ 1,000 + $ 940 ) / 2
= $ 970
So the approximate yield will be:
= $ 180 / $ 970
= 18.56% Approximately
So the rank will be as follows:
Option b, Option a and then option c.
Feel free to ask in case of any query relating to this question
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