What makes for a good investment

Reference no: EM13706126

What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns.
Buy a stock for $35 a share, hold it for 3 years, and then sell it for $75 a share (the stock pays annual dividends of $2 a share).
Buy a security for $15, hold it for 2 years, and then sell it for $55 (current income on this security is 0).
Buy a 1-year, 5% note for $925 (assume that the note has a $1,000 par value and that it will be held to maturity).
An investor is thinking about buying some shares of Computer Engines, Inc. at $60 a share. She expects the price of the stock to rise to $100 a share over the next three years. During that time, she also expects to receive annual dividends of $3 per share. Given that the investor's expectations (about the future price of the stock and the dividends it pays) hold up, what rate of return can she expect to earn on this investment? (Hint: Use either the approximate yield formula or a financial calculator to solve this problem.)
An investor in the 28% tax bracket is trying to decide which of two bonds to select: one is a 6.5% U.S. Treasury Bond selling at par; the other is a municipal bond with a 5.25% coupon, which is selling at par. Which of these two bonds should the investor select? Why?
Describe and differentiate between a bond's current yield and yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 6%, $1,000 par value bond trading at a price of $750. What's the current yield on this bond?
Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?
A 6%, 20-year bond quoted at 97.750.
A 4%, 15-year bond quoted at 64.625.
Q 5.25%, 18-year bond quoted at 54.000.

What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns.

Buy a stock for $35 a share, hold it for 3 years, and then sell it for $75 a share (the stock pays annual dividends of $2 a share).
Buy a security for $15, hold it for 2 years, and then sell it for $55 (current income on this security is 0).
Buy a 1-year, 5% note for $925 (assume that the note has a $1,000 par value and that it will be held to maturity).

An investor is thinking about buying some shares of Computer Engines, Inc. at $60 a share. She expects the price of the stock to rise to $100 a share over the next three years. During that time, she also expects to receive annual dividends of $3 per share. Given that the investor's expectations (about the future price of the stock and the dividends it pays) hold up, what rate of return can she expect to earn on this investment? (Hint: Use either the approximate yield formula or a financial calculator to solve this problem.) An investor in the 28% tax bracket is trying to decide which of two bonds to select: one is a 6.5% U.S. Treasury Bond selling at par; the other is a municipal bond with a 5.25% coupon, which is selling at par. Which of these two bonds should the investor select? Why? Describe and differentiate between a bond's current yield and yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 6%, $1,000 par value bond trading at a price of $750. What's the current yield on this bond? Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?

A 6%, 20-year bond quoted at 97.750.
A 4%, 15-year bond quoted at 64.625.
Q 5.25%, 18-year bond quoted at 54.000.

Reference no: EM13706126

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