FINANCIAL PLANNING PROBLEMS CHAPTER 14
1. Calculating Dividend Amounts. Betty and John Martinez own 220 shares of Exxon common
stock. Exxon’s quarterly dividend is $1.08 per share. What is the amount of the dividend
check that the Martinez couple will receive for this quarter?
Quarterly dividend = 220 shares  $1.08 = $237.60 (pp. 443-448)
2. Determining the Number of Shares after a Stock Split. In March, stockholders of Dress Barn
Corporation approved a two for one stock split. After the split, how many shares of Dress
Barn stock will an investor have if she or he owned 360 shares before the split?
360 shares before the split  2 = 720 shares after the split. (pp. 445-446)
3. Calculating Total Return. Tammy Jackson purchased 100 shares of All-American
Manufacturing Company stock at $29 1/2 a share. One year later, she sold the stock for $38 a
share. She paid her broker a $34 commission when she purchased the stock and a $42
commission when she sold it. During the 12 months that she owned the stock, she received
$184 in dividends. Calculate Ms. Jackson’s total return on this investment.
Current Return = $184 in dividends over the past 12 months
Purchase Price = $29.50  100 shares + $34 commission = $2,984
Selling Price = $38  100 shares - $42 commission = $3,758
Capital gain = $3,758 - $2,984 = $774
Total Return = $184 Current Return + $774 capital gain or $958. (pp. 444-445)
6. Calculating the Dividend Amount for a Cumulative Preferred Stock Issue. Wyoming Sports
Equipment issued a $3 cumulative preferred stock issue. In 2005, the firm’s board of
directors voted to omit dividends for both the company’s common stock and preferred stock
issues. Also, assume that the corporation’s board of directors votes to pay dividends in 2006.
a. How much did the preferred stockholders receive in 2005?
Because of the board’s action, preferred stockholders received $0 in 2005.
b. How much did the common stockholders receive in 2005?
Because of the board’s action, common stockholders received $0 in 2005.
c. How much did the preferred stockholders receive in 2006?
Cumulative preferred stockholders received $6 in 2006, as illustrated below.
$3 (2005 omitted dividend) + $3 (2006) = $6 total dividend (p. 447)
9. Calculating Return on Investment. Two years ago, you purchased 100 shares of Coca-Cola
Company. Your purchase price was $41 a share, plus a total commission of $29 to purchase
the stock. During the last two years, you have received the following dividend amounts:
$1.03 per share for the first year, and $0.91 per share, the second year. Also assume that at
the end of two years, you sold your Coca-Cola stock for $52 a share plus a total commission
of $34 to sell the stock.
a. Calculate the current yield for your Coca Cola stock at the time you purchased it.
$1.03 first year dividend ÷ $41 original purchase price = 2.51 percent.
b. Calculate the current yield for your Coca-Cola stock at the time you sold it.
$0.91 second year dividend ÷ $52 selling price = 1.75 percent
c. Calculate the total return for your Coca-Cola investment when you sold the stock at the
end of two years.
Current Return = $1.03 + $0.91 = $1.94  100 shares = $194
Capital Gain = $52 selling price - $41 original purchase price = $11  100 shares =
$1,100
Capital Gain = $1,100 - $63 commission = $1,037
Total Return = $194 Current Return + $1,037 Capital Gain = $1,231
d. Calculate the annualized holding period yield for your Coca-Cola investment at the end
of the two-year period.
Annualized Holding Period Yield = $1,231 Total Return ÷ $4,129 original investment 
1/2 = 0.149 = 14.9 percent (pp. 456-458)
11. Using Dollar Cost Averaging. For four years, Mary Nations invested $3,000 each year in
America Bank stock. In 2003, the stock was selling for $34. In 2004, the stock was selling for
$48. In 2005, the stock was selling for $37. In 2006, the stock was selling for $52.
a. What is Ms. Nations’s total investment in America Bank?
Ms. Nations’s total investment is $12,000, as illustrated below.
$3,000 x 4 years = $12,000 total investment.
b. After four years, how many shares does Ms. Nations own?
Ms. Nations owns 289.5 shares, as illustrated below.
2003
$3,000 ÷ $34 =
88.2 shares
2004
62.5 shares
$3,000  $48 =
2005
81.1 shares
$3,000  $37 =
2006
57.7 shares
$3,000  $52 =
Total Shares
289.5 shares
c. What is the average cost per share of Ms. Nations’s investment?
The average cost per share is $41.45, as illustrated below.
$12,000 total investment  289.5 shares = $41.45 per share cost. (p. 467)
FINANCIAL PLANNING PROBLEMS CHAPTER 15
1. Calculating Interest. Calculate the annual interest and the semiannual interest payment for the
following corporate bond issues with a face value of $1,000. (p. 482)
Annual Interest
Rate
Annual Interest
Amount
Semiannual Interest
Payment
5.125%
$51.25
$25.625 = $25.63
6.25%
$62.50
$31.25
7.0%
$70.00
$35.00
7.125%
$71.25
$35.625 = $35.63
8. Calculating Tax-equivalent Yields. Assume that you are in the 35 percent tax bracket and that
you purchase a 5.12 percent tax-exempt municipal bond. Calculate the tax equivalent yield
for this investment.
Tax equivalent yield = tax-exempt yield divided by (1.0 minus current tax rate) (p. 496)
Tax equivalent yield = 5.12 percent divided by (1.0 minus 0.35) = 0.0788=7.88 percent