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Your Money and Your Math Chapter 13

Your Money and Your Math Chapter 13. 1. Investing in Stocks, Bonds, and Mutual Funds. 13.5. 2. Definitions and formulas. a. total cost of purchase = cost per share  shares purchased + commission. b. total dividend = shares purchased  dividend per sh are.

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Your Money and Your Math Chapter 13

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  1. Your Money and Your Math Chapter 13 1

  2. Investing in Stocks, Bonds, and Mutual Funds 13.5 2

  3. Definitions and formulas a. total cost of purchase = cost per share  shares purchased + commission b. total dividend = shares purchased  dividend per share c. commission sale = commission rate on sale  sale price  shares sold d. capital gain = change in price per share)shares sold  (commissions) e. total return = capital gains + total dividend 3

  4. The following lists the six New York Stock Exchange volume leaders on June 24: 1. An investor buys 215 shares of PFE at the Last Trade price, pays a $60 commission on the purchase, and sells the 215 shares a year later at $32.10 per share with a 2.5% commission on the sale. Find the total cost of purchasing. the total dividend. the commission when selling the shares. the capital gain when selling the shares. the total return for the year. the percent of return (two decimal place accuracy). 4

  5. SOLUTION a. total cost of purchase = 215  $28.52 + $60.00 = $6191.80 b. total dividend = 215  $0.72 = $154.80 c. commission sale = 0.025  215  $32.10 = $172.54 d. capital gain = ($32.10  $28.52)215  ($60.00 + $172.54) = $537.16 e. total return = $537.16 + $154.80 = $691.96 5

  6. The following lists the six New York Stock Exchange volume leaders on June 24: 3. An investor buys 200 shares of PFE at the Last Trade price, pays a $50 commission on the purchase, and sells the 200 shares a year later for $30 per share with a 2% commission on the sale. 6

  7. SOLUTION • Total Cost of purchase= $28.52(200) + $50 = $5754 • Total Dividend = $0.72(200) = $144 • Sales Commission = .02($30 x 200) = $120 • Capital gain = ($30 – $28.52) x 200 – $50 – $120 = $126 • Total Return = $126 + $144 = $270 • PR = = = 0.04596 = 4.60% $270 . ($5754 + $120) $270 . $5874 7

  8. An investor (a day trader) always buys 1000 shares of stock at the market close price and sells them at the last sale price, paying a $25 commission per transaction. Find • The total cost of purchase. • The return for the day. • The percent of return if the stock the trader bought is MSLV. 8

  9. SOLUTION a. total cost of purchase= 1000  $2.21 + $25.00 = $2235.00 b. return for the day = ($2.60  $2.21)  1000  2  $25.00 = $340.00 9

  10. Where: A = total fund assets L = total fund liabilities N = total number of outstanding shares. Net asset value (NAV): For an individual: A = value of the shares when sold L = the cost of the shares N = number of shares purchased. Capital appreciation: an increase in the NAV of the fund. Dividends: the profits that the company allocates to the owners. Distribution per share NAV(at time of sale) Capital gain distribution: the profits made by selling stocks or bonds that have gone up in price in the fund. 10

  11. Find: a. the capital appreciation. b. the yield. c. the return of EastCo stock. 11

  12. SOLUTION ($50 – $40) 400 =0.025 = 2.5% $ 4 $50 = 0.08 = 8% ($10(400) + $4(400)) ($40*400) = 0.35 = 35% 12

  13. Suppose an investor automatically reinvests at the rate of 1% per month. Find the annual rate of return. The solution to this problem is no different than finding the APY of compound interest. Annual rate of return = (1 + 0.01)12 – 1 = 0.13 = 13% 13 END

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