HOMEWORK PROBLEMS #3
1. Calculating the Amount for an Emergency Fund. Beth and Bob Martin have a total take-home pay of $3,200 a month. Their monthly expenses total $2,800. Calculate the amount the couple needs to establish an emergency fund. How did you calculate this amount?
2. Determining Profit or Loss from an Investment. Three years ago, you purchased 150 shares of IBM stock for $88 a share. Today, you sold your IBM stock for $103 a share. For this problem, ignore commissions that would be charged to buy and sell your IBM shares.
a. What is the amount of profit you earned on each share of IBM stock?
b. What is the total amount of profit for your IBM investment?
3. Calculating Rate of Return. Assume that at the beginning of the year, you purchase an investment for $6,000 that pays $80 annual income. Also assume the investment’s value has increased to $6,900 by the end of the year.
- What is the rate of return for this investment?
4. Determining Interest. Assume that you purchased a corporate bond with a face value of $1,000. The interest rate is 6 percent. What is the dollar amount of annual interest you will receive each year?
5. Determining Interest. Three years ago you purchased a Harley Davidson corporate bond that pays 6.75 percent annual interest. The face value of the bond is $1,000. What is the total dollar amount of interest that you received from your bond investment over the three-year period?
6. 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.
This bond increased in value because you owned a bond with a fixed interest rate of 9.5 percent during a time period when interest rates in the economy were declining.