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a. Calculate the earnings per share of Bozo Oil’s common stock. (p.
457)
b. Assuming that a share of Bozo Oil’s common stock has a market
value of $40, what is the firm’s price-earnings ratio? (p. 457)
c. Calculate the book value of a share of Bozo Oil’s common stock. (p.
461)
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?
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?