Personal Finance is teaching us a variety of topics and investments has been our area of study for this week and herein under scrutiny today, are the features of stocks, bonds and how they are traded. Also included are how to calculate the annual rate of return and some actual calculation examples.
a. What are bonds? What are their features and how are they traded?
Stocks and bonds are different, and accordingly are purchased and sold in distinctive markets. Bonds are different from stock in that a bond is a loan to a company or a government. Moreover, bonds function differently from stocks, a bond has a principal (the initial invested amount of loan) it has a yield or interest rate and it has a maturity date, which determines how long the
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Consequently, investing in a business that has a proven track record is the best strategy, investing in an unproven organization is called speculating. Moreover, researching the corporation before purchasing stock is recommended to understand all risk associated with this endeavor. In addition, stocks pay out dividends from time to time based on excess income earned by the organization, the executive board determines when the corporation pays out dividends and when returns will be reinvested (Investopedia Staff, 2014) …show more content…
Moreover, the only way to purchase stocks is through a broker, subsequently, you can 't just walk into a marketplace and buy stocks, it 's a process to become a member. Consequently, using a broker is the best method and there are plenty of avenues to find one, in addition, with the innovation of the internet, buying stocks online has become commonplace, with individuals becoming day traders, meaning all stocks are sold at the end of the trading day and start fresh the next morning. However, choosing a broker can be difficult, but remember full service brokers will dispense advice about choosing stocks and other possible investments which is not the norm with an online broker (Investopedia, 2005).
How do you calculate an annual rate of return?
The formula to calculate annual rate of return is as follows:
[Income + (Ending Value – Original Value)] ÷ Original Value = % Rate of Return (Siegel & Yacht, 2009, p.232)
First figure out the gain or the difference between the ending value and original value. Then add the income to that and divide it by the original value. This gives you the annual rate of return.
You buy a share of stock for $100 and it pays no dividend. A year later the market price is $105. What is the rate of
Future scope of study can include more robust variables that could be used to build a better understanding of the factors that go into providing a dividend payout. A longer duration of study (we studied the company for 8 years) to reduce any short-term anomalies that may have arised in the performance of the companies. We would also like to provide for a comparison study on dividend patterns between pharma industry and the other industries prevalent in the country.
To get the Return on equity, you take net income and divided by the average shareholder equity. The net income for the quarter of Sept 2014 which was $18,468 million (Securities and Exchange Commission, 2014). The average shareholder equity for the quarter that ended in Sept 2014 was $235,731 million. So the annualized return on equity for the quarter that ended in Sept 2014 was 7.83% (Securities and Exchange Commission, 2014).
The Damon Investment Company manages a mutual fund composed mostly of speculative stocks. You recently saw an ad claiming that investments in the funds have been earning a rate of return of 21%. This rate seemed quite high so you called a friend who works for one of Damon’s competitors. The friend told you that the 21% return figure was determined by dividing the two-year appreciation on investments in the fund by the average investment. In other words, $100 invested in the fund two years ago would have grown to $121 ($21 ÷ $100 = 21%).
You would not buy a home, car or other large purchases without researching what product offered you the most for your money. The same is true when investing in a company. Investors do avid research on multiple companies to find what company matches the investors' criteria. In this paper Team C will research both AT&T and Verizon's financial documents. Team C will compare selected ratios, cash flow and make recommendations how both companies can manage cash flow for the future.
For the year 2010, the return on sales was .0892. That number is calculated by dividing the net earnings by the total sales. 2010 Return on Sales = $1,069,326 / $11,991,558 and 2011 Return on Sales = $891,082 / $11,850,460.
ROI evaluates and compares the different investments delivered and invested by the company (Aacker, 2001). Calculating the ROI, is dividing the benefit (return) of an investment by the cost of the investment. Percentage or a ratio is the result of this calculation (Investopedia, 2014). In addition, there are step-by step calculations that senior executives will use to calculate ROI for a company these procedures as defined by (Berman and Knight, 2008).
We analyzed the market for two weeks to determine when the equity market would turn from a bearish to bullish market. Without a change in the market and a declining bond price, we decided to invest in equities according to our investment strategy, which brought us into the second phase of our portfolio. Therefore, at the beginning of February we bought shares in Sirius, Microsoft, Neon, Washington Mutual, and Nike. As assumed, the equity market continued to plummet decreasing the value of all our stocks except for our Gold Corporation stock.
When it comes to financial planning, economics plays a major factor in people’s personal finances in many ways, it is an essential part of the world we live in today. When you buy gas, or shop for groceries, plan a vacation, economics is at the core of those choices. So why does economics play such a vital role, what is the driving force behind this? In its simplest form, it’s based on choice. We will look at a few factors that impacts financial planning and the economy, including the use of credit, and how the government affects the economy.
While it is very important for young individuals to start to save and invest for their retirement, there are aspects that they should consider before jumping into investing into securities. Those subjects are cash, enough insurance, should you buy a home, how secure is your job, how much risk can you handle, equities are risky, get started, do everything, be flexible, and can you save and invest too much. These ten aspects should be looked at, analyzed, and taken into very critical thought before saving and investing into securities.
I became an enthusiast of finance ever since I was at high school. At the political economy class, my teacher asked us: if you have a million RMB, how would you use it? She then introduced us the concept of investment, and I was intrigued specifically by the stock. For the latter two years of my high school, I have been reading books and articles regarding the stock market in the U.S. and in China. As one of the outstanding students ranked top 1% in College Entrance Exam in Hainan Province, China, I was accepted by the City University of Hong Kong with a full scholarship. With the strong interest in finance, I chose quantitative finance and risk management as my major.
The return on Investment (ROI) is important because it describes the rate of return the company was able to...
This is the rate of return (the discount rate) at which the net present value of the investment is zero, or that is the discount rate at which the discounted income from the project is equal to the investment costs
Kimi Ford, a portfolio manager at Northpoint Group, a mutual fund management firm is looking into investing in the stocks of Nike Inc. for the company that she’s in charge of. Her decisional criteria should be based on Nike’s financial reports and statements of 2001. There were several problems in Nike because of which the stock prices of the company were declining and also a third party gave their opinion based on if the investment is really worth it.
Personal Finance is a class I’ve wanted to take for a while now. My major is Finance not because I want a career in finance but more to learn about finance for my own personal situation. This class taught me so much! During this class I was able to evaluate my financial situation and set financial goals for myself. The four topics that helped me the most were emergency savings, buying a car, purchasing a home, retirement, and estate planning. After completing this class I have a better understanding of these topics and how to achieve my financial goals.
Never have I ever climbed a mountain peak. As a child, I imagined myself conducting expeditions in deep-frozen pathways, leading amateur explorers to the top of the world, and instructing rookies in surviving harsh blizzards. Even though slightly altered, my childhood dream has been achieved. I led a team of fellow classmates, in my Strategic Management course, to the success summit of a financial competition. Over the course of a semester, I and my teammates were supposed to create and manage a company of the IT industry, in a computer-simulated environment, along with other four rival teams. I dealt with strategy and financial matters of our virtual enterprise, while my colleagues were working on marketing and manufacturing. During the four months of the exercise, I have experienced finance from various aspects: capital budgeting, through selecting favorable investment for upcoming quarters; debt management, by assessing the necessary amount and efficiency of loans; profitability analysis and dividend policy, which had been used to compile the company’s general performance index. Working in a multinational team, which included an American, a Norwegian and a Moldovan, strengthen my negotiations skills, as well as flexibility and cooperation. But above all, this experience intensified my passion for finance. Of course, a pleasant bonus was the fact that, in the end, our company’s financial performance was six times the performance of second-best team.