Problem 1. An investor bought 10 Ellis Industries, Inc., long-term bonds one year ago, when they were first issued by the company. In addition, he bought 200 shares of the company's common stock at the same time for $30 per share. He paid $1,000 each for the bonds, and today, the bonds are selling at $950 each (long-term interest rates have increased slightly over the past year). The e bonds have a stated interest rate of 12 percent per year. The investor received an interest payment equaling $60 per bond six months ago and has just received another $60 per bond interest payment.
Calculate the investor's percentage holding period return for the one year he has held the bonds.
Problem 2. Suppose a U.S. Treasury bill, maturing in 30 days, can be purchased today for $99,500. Assuming that the security is held until maturity, the investor will receive $100,000 (face amount).
Determine the percentage holding period return on this investment.
Problem 3. Vanity Press, Inc., has annual credit sales of $1,600,000 and a gross profit t margin of 35 percent.
a. If the firm wishes to maintain an average collection period of 50 days, what level of accounts receivable should it carry? (Assume a 365-day year.)
b. The inventory turnover for this industry averages six times. If all of Vanity's sales areon credit, what average level of inventory should the firm maintain to achieve the same inventory turnover figure as the industry?