Reference no: EM131496130
Assignment: Investment
Bonds and has asked that you put together an example of these investments to illustrate how they work.
Calculate the returns on the following investments (include the US$ and percent) to illustrate how they work.
1. A stock that does not pay a dividend of which you buy 100 shares for $25.00 per share and sell the 100 shares for $27.50 a year later. You pay the $50.00 commission when you sell the securities.
2. A 5-year bond that you purchase for US$1,000 pays a 6% yearly rate. It is paid semiannually, and you hold the bond until maturity.
3. The current yield on a bond that is priced at $89 has a 6% coupon.
4. The yield-to-maturity (YTM) on a 7.25% ($1,000 par value) bond that has 10 years remaining to maturity, currently trading in the market at $825.
5. The holding period return (HPR) for 1,000 shares of a no-load mutual fund currently selling at a NAV of $11, purchased a year ago at a NAV of $10.50/share, including $300 of distributed investment income dividends and capital gains dividends of $350.
After you have shared some basic information with Dr. Bueller about the different types of investments, he also wants you to explain the differences between the different types of bonds-from investment grade to high yield. Explain the various ratings that bonds can get and explain the two major rating agencies.
Assignment Guidelines
• Perform the 5 calculations listed in the Assignment Description.
o You must show all of your work as well as any formulas that you used.
o If you used Excel to arrive at your answers, then you must provide an explanation of your methodology.
• Next, answer the following questions for Dr. Bueller:
o What are the different types of investments a person can make?
o What are the differences between the various types of bonds?
o What do bond ratings indicate, and what 2 major agencies are in charge of assigning these ratings?
• Compile your calculations, Excel tables and explanations (if applicable), and your answers to the 3 questions above into a single Word document.
Your submitted assignment must include the following:
• A 3-4-page Word document (body of paper) that contains your 5 assignment calculations, any work you performed in Excel along with your explanations, and your answers to the 3 questions listed in the Assignment Guidelines.