Complete the following problems as a team:
• Assume that you are choosing an investment for your retired parents. What are the advantages and disadvanges of each of the following?
o a bond issued by the federal government,
o a state or local government,
o or a corporation?
• Which would you recommend for your retired parents? Justify your answer.
• Five years ago, you purchased a $1,000 corporate bond issued by General Electric. The interest rate for the bond was 5%. Comparable bonds are paying 6% today.
o What is the approximate dollar price for which you could sell your General Electric bond?
o In your own words, describe why your bond decreased in value.
• Sidney took a $200 cash advance by using checks linked to her credit card account. The bank charges a 2% cash advance fee on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived.
o What was the cash advance fee?
o What was the interest for 1 month at an 18% APR?
o What was the total amount she paid?
o What if she had made the purchase with her credit card and paid off her bill in full promptly?
• Retirees often make a choice between the following: What are the advantages and disadvantages of both.
1) taking a lump-sum pension payout and purchasing an annuity (or having the company convert their benefit to an annuity for them) or
2) using the lump-sum payout to purchase a portfolio of bonds intended to provide them an income stream. Compare the advantages and disadvantages of each strategy.