investments 1 - Running head STOCKS BONDS UNIT 1 1 Stocks Bonds Unit 1 Constance Lima-Gonzalez Finance 405 September 1 2013 STOCKS BONDS UNIT 1 2 Stocks

investments 1 - Running head STOCKS BONDS UNIT 1 1 Stocks...

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Running head: STOCKS & BONDS- UNIT 1 1 Stocks & Bonds- Unit 1 Constance Lima-Gonzalez Finance 405 September 1, 2013
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STOCKS & BONDS- UNIT 1 2 Stocks & Bonds- Unit 1 1. Dollar Return: (Investopedia, 2011). PV = N x Amt. Paid Purchase Value = 100*$25=$2,500 Sell Value = N x Amt. sells for $2,750 = 100*$27.50 Commission = $50 Sell Value - Purchase Value – Commission= Dollar Return $2,750 - $2,500 - $50 = $200 Percent Return: Dollar Return / Purchase Value =Percent Return $200/$2500 = 0.08 or 8.00% 2. Dollar Return: Par Value of Bond * Coupon Rate / Coupon payment frequency= Coupon Payment $1000 * 6%/2= $30 Coupon payment frequency * Time to maturity for bond = # of Payments 2 * 5 = 10 No. of coupon payments * Coupon payment = Total of $ Return 10*$30=$300 Percent Return: Total of $ Return /# yrs. To Maturity = % Return $300.00 / 5 = 6.0 or 6% % Return = 6% annual 3. Dollar Return: Par Value of Bond * Coupon Rate / Coupon payment frequency = Coupon Payment $100 * 6% = $6 Current yield in dollars = Coupon payment = $6.00 Percent Return: Coupon payment / current price = Percent Return
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STOCKS & BONDS- UNIT 1 3 $6.00 / $89.00 = 0.0674 or 6.74% 4. Dollar Return: (Investopedia, 2011). Par Value of Bond * Coupon Rate / # of payments = Coupon Payment $1000 * 7.25% = $72.50 No of Coupon Payments = Coupon payment frequency * Time to maturity for bond No of Coupon Payments =1*10=10 Total Dollar return = No. of coupon payments * Coupon payment 10*$72.50=$725 Percent Return: Use Excel to calculate the percent return. First, create annual cash flows for the bond and then use the excel IRR function to calculate the Percent Return. Year Cash Flow (Investopedia, 2011). 0 -825 1 72.5 2 72.5 3 72.5 4 72.5 5 72.5 6 72.5 7 72.5 8 72.5 9 72.5 10 1072.5 IRR 10.11% Bond Par Value $1,000 Coupon 6% Payments/Yr 2 Bond Life (Yrs) 5 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Invesment -$1,000 Interest Payment 1 $30 $30
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  • Finance, Investopedia, BONDS- UNIT

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