Question

4 Course Exam 17. Two years ago, Sheila invested $1,000 in MNO mutual fund. At the end of the first year, her account was worth $1,200, and she invested another $1,000. At the end of the second year, MNO's shares were priced at $50 per share. MNO paid no dividernds during the 2-year period. If Sheila originally purchased 22 shares, calculate MNO's annualized rate of return over the 2-year period. A. 0.53% B. 4.88% C. 10% D. 20%

Answer 1

17 ) THE CORRECT ANSWER IS (A)

THIS SUM CAN BE SOLVED USING THE IRR FUNCTION IN EXCEL FOR THAT WE WILL NEED CASH FLOW AT VARIOUS PERIOD

CF(0) = 1000 (22 SHARES)

CF(1) = 1000 (18.3333 SHARES)

CF(3) = (2016.667) (40.333 SHARES* 50) THE VALUE IS TAKEN AS NEGATIVE..

THE EXCEL FILE IMAGE SHOWS THE CALCULATION

22) THE CORRECT ANSWER IS (B)

SINCE THE WHEAT FARMER WILL HAVE A STOCK OF WHEAT AND RUNS THE RISK OF WHEAT PRICE DECLINING BY THE TIME WHEAT IS HARVESTED HE CAN CREATE A SHORT HEDGE BY SELLING A WHEAT FUTURES CONTRAT AS A HEDGE AGAINST A DECLINE IN PRICE OF WHEAT. IN THIS WAY IF THE PRICE OF WHEAT FALLS HIS LOSS ON SALE OF WHEAT WILL BE COMPENSATED BY SHORT POSITION IN WHEAT CONTRACT

NPV AND IRR.xlsx - Excel Page Layout Formulas Data Review View Developer Help Tell me what Percentage Home Insert 3 Cut Copy - Format Painter pboard X Calibri B I 7.11 VA A - >> A po === = e Wrap Text 3 Merge & Center - U - 0 %; Number Font Alignment for =IRR(C4:06,1) YEAR CASH FLOW 1000 1000 -2016.66667 0.55453%