Problem Set 4 Solution (***** 100% correct All 6 Sum with details Calculation )Problem Set 41. 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?2. Calculating Rate of Return. Assume that at the beginning of the year you purchase an investment for $8000 that pays $100 annual income. Also assume the investment s value has decreased to $7400 by the end of the year.a. What is the rate of return for this investment?b. Is the rate of return a positive or negative number?3. Calculating Earnings Per Share Price-Earnings Ratio and Book Value. As a stockholder in Bozo Oil Company you receive its annual report. In the financial statements the firm has reported assets of $9 million liabilities of $5 million after-tax earnings of $2 million and 750000 outstanding shares of common stock.a. Calculate the earnings per share of Bozo Oil s common stock. b. Assuming that a share of Bozo Oil s common stock has a market value of $40 what is the firm s price-earnings ratio? c. Calculate the book value of a share of Bozo Oil s common stock.4. 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 $1000. 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.5. Using Margin. Bill Campbell invested $4000 and borrowed $4000 to purchase shares in Wal-Mart. At the time of investment Wal-Mart was selling for $45 a share.a. If Bill paid $30 commission how many shares could Bill buy if he used only his own money and did not use marginb. If Bill paid $50 commission how many shares could Bill buy if he used his $4000 and borrowed $4000 on margin to buy Wal-Mart stockc. 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 $1000.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 Week 4 TCO 4 Problem Set 4BUSN380 Week 4 TCO 4 Problem Set 4BUS380 Week 4 TCO 4 Problem Set 4BUSN/380 Week 4 Problem Set 4

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## Problem Set 4 Solution (***** 100% correct All 6 Sum with details Calculation )P

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