2. Assuming that comparable bonds are paying 8 percent, what is the approximate dollar price for which you could sell your bond? 3. In your own words, explain why your bond increased or decreased in value. 5. Using Margin. Bill Campbell invested $4,000 and borrowed $4,000 to purchase shares in Wal-Mart. At the time of investment, Wal-Mart was selling for $45 a share. 1. If Bill paid $30 commission, how many shares could Bill buy if he used only his own money and did not use margin? 2. If Bill paid $50 commission, how many shares could Bill buy if he used his $4,000 and borrowed $4,000 on margin to buy Wal-Mart stock? 3. Assuming that Bill did use margin, paid $90 commission to sell his stock, and sold his Wal-Mart stock for $53, how much profit did he make on his Wal-Mart investment? 6. Calculating yields. Assume you purchased a corporate bond at its current market price of $850 on January 2, 2002. It pays 9 percent interest and it will mature on December 31, 2011, at which time the corporation will pay you the face value of $1,000. a. Determine the current yield on your bond investment at the time of purchase. b. Determine the yield to maturity on your bond investment. BUSN 380 DeVry Week 5 Problem Set 5 Problem Set 5 1. Tammy Monahan is considering the purchase of a home entertainment center. The product attributes and weights she plans to consider are: Portability .1 Sound projection .6 Warranty .3 Tammy rated the brands as follows: portability sound projection warran Brand A 6 8 7 Brand B 9 6 8 Brand C 5 9 6 Using the Consumer Buying Matrix presented in Chapter 8, conduct a quantitative product evaluation rating for each brand. What other factors is Tammy likely to consider when making her purchase? 2. Based on the following, calculate the costs of buying and of leasing a motor vehicle. Purchase Costs Leasing Costs
Down payment $1,500 Security deposit $500 Loan payment $450 for 48 months Lease payment $450 for 36 months Estimated value at End of loan $4,000 End of lease charges $600 Opportunity cost interest rate: 4 percent 3. You can purchase a service contract for all of your major appliances for $180 a year. If the appliances are expected to last for 10 years, and you earn 5 percent on your savings, what would be the future value of the amount you would pay for the service contract? 4. You estimate that you can save $3,800 by selling your own home rather than using a real estate agent. What would be the future value of that amount if invested for five years at 7 percent? 5. John Walters is comparing the cost of credit to the cash price of an item. If John makes a $60 down payment, and pays $34 a month for 24 months, how much more would that be than the cash price of $695? BUSN 380 DeVry Week 6 Problem Set 6 Problem Set 6 1. For each of the following situations, what amount would the insurance company pay? 1. Wind damage of $835; the insured has $500 deductible. 2. Theft of a stereo system worth $1,300; the insured has a $250 deductible. 3. Vandalism that does $425 of damage to a home; the insured has a $500 deductible. 2. Beverly and Kyle Nelson currently insure their cars with separate companies paying $650 and $575 a year. If they insure both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings over ten years based on an annual interest rate of 6 percent? 3. As of 2008, per capita spending on health care in the United States was about $8,000. If this amount increased by 5 percent a year, what would be the amount of per capital spending for health care in 10 years? 4. Sarah’s comprehensive major medical health insurance plan at work has a deductible of $750. The policy pays 85 percent of any amount above the deductible. While on a hiking trip, she contracted a rare bacterial disease. Her medical costs for treatment, including medicines, tests, and a six-day hospital stay, totaled $8,893. A friend told her that she would have paid less if she had a policy with a stop-loss feature that capped her out-of-pocket expenses at $3,000. Was her friend correct? Show your computations. Then determine which policy would have cost Sarah less and by how much.