BUSN 380 help Making Decisions/uophelp.com BUSN 380 help Making Decisions/uophelp.com | Page 54

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.
Assume you purchased a corporate bond at its current market price of
$850 on January 2, 2002. It pays 9 percent interest and it will mature on
December 31, 2011, at which time the corporation will pay you the face
value of $1,000.
a. Determine the current yield on your bond investment at the time of
purchase.
b. Determine the yield to maturity on your bond investment.
----------------------------------------------------------------------------