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Exercise
Exercise
BSBA-3D
Exercise
Instruction. Submit your answers through Google Classroom or FB Messenger.
Part I. Identification. Identity the term/terms described by each of the following statements.
1. When we talk about a return on an investment, we are concerned with the change in wealth resulting from this investment.
5. A value less than zero. The value that indicates you have a negative return during the period.
7. When an annual percentage rate is to derive a percentage return is referred to as holding period yield (HPY).
9. Geometric mean (GM), It is considered a superior measure of the long-term mean rate of return.
10. n A symbol that stands for number of years the investment is held.
1. Consider an investment that cost Php3,000 and is worth Php4,000 after being held for 3 years. Compute the Annual HPR and Annual HPY.
4000
HPR =
3000
Annual HPR = 1.3
= 1.31/n
= 1.31/3
= 1.0819
2. Find the HPR and HPY from Php4000 as your Beginning Value of Investment with Php3,500 Ending Value.
3500
HPR = = 0.87
4000
3. From value provided in the table below, fill in the missing value and calculate the AM and GM.
= .2847 / 3 = 1.24981/3 -1
= .0949 =1.0771 – 1
= 9.94% = .0771
= 7.71%
4. Determine the HPR and HPY based on the data below after completing the blank boxes.
Investment No. of Beginning Beginning Market Value Ending Price Ending Market HPR HPY Market Weighted HPY
Shares Price Value Weight
A 50,000 Php 10 Php 400,000 Php 20 Php 1,000,000 2.50 1.50 0.03 0.045
B 100,000 21 2,100,000 20 2,000,000 0.9523 -0.0477 0.18 -0.0085
C 300,000 30 9,000,000 35 10,500,000 1.1667 0. 0.78 0.1300
1667%
Total Php 11,500,000 Php 13,500,000 0.1739
Reflection
If the value of your HPR was negative, what is its implication to your business and what are the possible ways in order to gain positive rate of return?
A value less than zero means you suffered a decline in wealth, which indicates you had a negative return during the period. One way to increase your return on
investments is to generate more sales and revenues or raise your prices. (Chron.com)
It is said that when rates of return are the same for all years, the GM will be equal to the AM. If the rates of return vary over the years, will the GM be lower or higher
than the AM?
When rates of return are the same for all years, the GM will be equal to the AM. If the rates of return vary over the years, the GM will always be lower than the AM.
AM is best used as an expected value for an individual year, while GM is best measure of long-term performance since it measures the compound annual rate for the
asset being measured.