Week 4 Problem Set 4 Essay

850 WordsJun 7, 20124 Pages
Week 4 Homework Solutions: Problem Set 4 1. Determining Profit or Loss from an Investment. Three years ago, you purchased 150 shares of IBM stock for $88 a share. Today, you sold your IBM stock for $103 a share. For this problem, ignore commissions that would be charged to buy and sell your IBM shares. a. What is the amount of profit you earned on each share of IBM stock? The profit on each share of IBM stock was $15. $103 priced when each share was sold, $88 priced when each share was purchased = $15. b. What is the total amount of profit for your IBM investment? The total profit for the IBM transaction was $2,250. $15 profit per share x 150 shares = $2,250. 2. Calculating Rate of Return. Assume…show more content…
(p. 457). 40.00/2.67 = 14.98 = 15 P/E Ratio. c. Calculate the book value of a share of Bozo Oil’s common stock. (p. 461). 9,000,000-5,000,000/750,000 = $5.33 per share. 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. a. What is the annual dollar amount of interest that you will receive from your bond investment? The annual interest is $95. $1,000 9.5 percent = $95. b. Assuming that comparable bonds are paying 8 percent, what is the approximate dollar price for which you could sell your bond? The approximate dollar price would be $1,187.50. $95 annual interest ÷ 8 percent = $1,187.50 approximate. c. In your own words, explain why your bond increased or decreased in value. This bond increased in value because you owned a bond with a fixed interest rate of 9.5 percent during a time period when interest rates in the economy were declining. 5. Using Margin. Bill Campbell invested $4,000 and borrowed $4,000 to purchase shares in Wal-Mart. At the time of investment, Wal-Mart was selling for $45 a share. a. If Bill paid $30 commission, how many shares could Bill buy if he used only his own money and did not use margin? $4,000 -

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