Case Situation:
You are working for an investment firm and have been asked to analyze and explain investments to your boss and clients who do not understand the various aspects of your job. You are working with the analysis of stocks, bonds and mutual funds. The following questions are examples of some of the analysis type problems that your boss has asked you to explain. Be sure to be thorough with your explanations.
In the old days, bond prices were expressed in terms of 1/32's and multiples thereof. An old letter in your files references a bond price that goes from 82 1/3 to 80 7/8. How much did it change?
You bought a bond GMAC 8s15 on 1-1-07 at a price of 45. What is the price in dollars? How many years before it expires (assume it expired Dec 31)? How much total interest will be received from the bond by the expiration date? What is the annual yield? How much risk is associated with this bond (low, medium or high) and how do you know?
You have invested in stock for 1 year. If you start with $125 worth, a 8.25% increase in value will cause it to be worth how much? If you start with $125 of stock and then it grows to $215, what was the growth rate?
One of your investments, a mutual fund, was bought by you for $15.80 on January 1 this year with a sales charge at that time of 3% of the NAV. It increased in value since then by $3. What is the current YTD NAV (that is, what can you sell it for today)? What is the YTD % return?
One of your clients has some stock he needs to distribute dividends to. However, the dividends for last year were never distributed. The total amount of dividends to be distributed is $120,000. It is to be distributed to 55,000 preferred shares at a fixed dividend of $1 per share. Your client wants to know how many dollars are distributed to preferred shareholders? How much per share is distributed to 20,000 common shareholders?
A client wants to know your best guess about the probable price of stock in 3 years. Historical data are listed below. Use Excel to graph the data and come up with the equation of a line to fit the data and use for predicting the price of the stock in 3 years.
Year Price, $
1963 115
1965 125
1967 130
1969 140
1971 110
1973 130
1975 140
1977 152
1979 170
1981 150
1983 140
1985 150
1987 177
1989 190
1991 175
1993 172
1995 170
1997 176
1999 184
2001 189
2003 198
2005 230