Investment

Anonymous
timer Asked: May 4th, 2017
account_balance_wallet $40

Question Description

A new client, Dr. Bueller, has demonstrated a particular thirst for knowledge of stocks and bonds and has asked that you put together an example of these investments to illustrate how they work.

Calculate the returns on the following investments (include the US$ and percent) to illustrate how they work.

  1. A stock that does not pay a dividend of which you buy 100 shares for $25.00 per share and sell the 100 shares for $27.50 a year later. You pay the $50.00 commission when you sell the securities.
  2. A 5-year bond that you purchase for US$1,000 pays a 6% yearly rate. It is paid semiannually, and you hold the bond until maturity.
  3. The current yield on a bond that is priced at $89 has a 6% coupon.
  4. The yield-to-maturity (YTM) on a 7.25% ($1,000 par value) bond that has 10 years remaining to maturity, currently trading in the market at $825.
  5. The holding period return (HPR) for 1,000 shares of a no-load mutual fund currently selling at a NAV of $11, purchased a year ago at a NAV of $10.50/share, including $300 of distributed investment income dividends and capital gains dividends of $350.

After you have shared some basic information with Dr. Bueller about the different types of investments, he also wants you to explain the differences between the different types of bonds—from investment grade to high yield. Explain the various ratings that bonds can get and explain the two major rating agencies.

Assignment Guidelines

  • Perform the 5 calculations listed in the Assignment Description.
    • You must show all of your work as well as any formulas that you used.
    • If you used Excel to arrive at your answers, then you must provide an explanation of your methodology.
  • Next, answer the following questions for Dr. Bueller:
    • What are the different types of investments a person can make?
    • What are the differences between the various types of bonds?
    • What do bond ratings indicate, and what 2 major agencies are in charge of assigning these ratings?
  • Compile your calculations, Excel tables and explanations (if applicable), and your answers to the 3 questions above into a single Word document.

Your submitted assignment must include the following:

  • A 3–4-page Word document (body of paper) that contains your 5 assignment calculations, any work you performed in Excel along with your explanations, and your answers to the 3 questions listed in the Assignment Guidelines.

Tutor Answer

Robert__F
School: University of Maryland

Good luck in your study and if you need any further help in your assignments, please let me knowCan you please confirm if you have received the work? Once again, thanks for allowing me to help youRMessage to studypool, no outline is needed as it is a

Running Head: INVESTMENT

Investment
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INVESTMENT

Q1. buying value = 100*$25 which is $2,500, while the selling value is 100*$27.5 which is
2,750. After subtracting the $50 commission and the buying value from the selling value you get
$2,750 - $50 = $2,700 - 2.500 = $200. The dollar return of the investment is $200, and the
percentage return is $(200/2500) * 100 to get 8%.
Q2. coupon payment = $(1,000 * (6/100))/2, which is $30. The number of coupon payments can
be determined through the payment frequency and the time they take to mature, which is 2*5 to
get 10. The dollar return; thus, becomes payment multiplied by the amount of coupon payments,
which is $30*10 to get $300.
Q3. coupon payment = $(100 * (6/100)), to get $6. The return in dollars is equivalent to the
coupon payment which is $6.
Q4. YTM = 11%, obtained from a calculation where the annuity payment is $72.50, with the
present and future values being $825 and $1,000 respectively.
Q5. HPR = income during the period plus the capital gain/loss the same period, all divided by the
initial value of investment. $((300 + 350)/10.50) = $61.90
Fradin and Fradin (2011) argue that investing is a way of earning where money is
expended into financial schemes with the expectations that, at some point, the money will earn a
profit. It is a way of making more money from the money one already has, without the need to
spend time and effort as one would do in a job. There are numerous types of investments, each
working differently but with the same goal of increasing the investor’s money. There are various
aspects of an investment to look out for, depending on the interests and inclinations of the
investor. Despite the close ...

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Review

Anonymous
Good stuff. Would use again.

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