BUSN 380 Course Great Wisdom / tutorialrank.com BUSN 380 Course Great Wisdom / tutorialrank.com | Page 36

2. Calculating Rate of Return. Assume that at the beginning of the
year, you purchase an investment for $8,000 that pays $100 annual
income. Also assume the investment’s value has decreased to $7,400
by the end of the year.

a.

What is the rate of return for this investment?

b.

Is the rate of return a positive or negative number?

Negative

3. Calculating Earnings Per Share, Price-Earnings Ratio, and Book
Value. As a stockholder in Bozo Oil Company, you receive its annual
report. In the financial statements, the firm has reported assets of $9
million, liabilities of $5 million, after-tax earnings of $2 million, and
750,000 outstanding shares of common stock.

a. Calculate the earnings per share of Bozo Oil’s common stock. (p.
457)
b. Assuming that a share of Bozo Oil’s common stock has a market
value of $40, what is the firm’s price-earnings ratio? (p. 457)

c. Calculate the book value of a share of Bozo Oil’s common stock.
(p. 461)

4. Determining Interest and Approximate Bond Value. Assume that
three years ago, you purchased a corporate bond that pays 9.5 percent.
The purchase price was $1,000. Also assume that three years after
your bond investment, comparable bonds are paying 8 percent.