BUSN 380 Course Great Wisdom / tutorialrank.com BUSN 380 Course Great Wisdom / tutorialrank.com | Page 37

a. What is the annual dollar amount of interest that you will receive
from your bond investment?

b. Assuming that comparable bonds are paying 8 percent, what is
the approximate dollar price for which you could sell your bond?

c.
In your own words, explain why your bond increased or
decreased in value.

The value of my bond increased because people would want to buy
my bond at $1000 because the same bond at 8% would cost more. My
bond had 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?
b. If Bill paid $50 commission, how many shares could Bill buy if
he used his $4,000 and borrowed $4,000 on margin to buy Wal-Mart
stock?
c.
Assuming that Bill did use margin, paid $90 commission to sell
his stock, and sold his Wal-Mart stock for $53, how much profit did
he make on his Wal-Mart investment?

6. Calculating yields.