REVIEW EXERCISES
|
CHAPTER 20—SECTION I
5,000,000
10,000,000
8,000,000
4,000,000
20,000,000
Company
Intel
Alcoa
Pepsi
Wrigley
IBM
none
$5.50
$100 6%
$100 4%
$6.25
no
no
yes
yes
Preferred Stock
Div. or Par
Cum.
Dividend
Declared
$ 3,000,000
25,000,000
10,000,000
14,000,000
none
2. Total preferred dividend 5 3,000,000 3 $5.50 5 $16,500,000
Total common dividend 5 $25,000,000 2 $16,500,000 5 $8,500,000
$8,500,000
5 .85 5 $.85 per share
Common dividend per share 5
10,000,000
$3,000,000
5 .6 5 $.60 per share
5,000,000
3,000,000
2,000,000
1,000,000
4,000,000
Shares
1. Common dividend per share 5
1.
2.
3.
4.
5.
Common Stock
Shares
none
none
none
1 year
1 year
Arrears
Common
Div./Share
$.60
$.85
0
$1.50
0
Preferred
Div./Share
—
$5.50
$5.00
$8.00
0
Calculate the preferred and common dividend per share for the following companies:
T20-1
REVIEW EXERCISES
|
10. Maytag—Dividend, percent yield, 52-week low:
9. McKesson—Percent yield, volume, last price:
8. Mattel—Dividend, volume, net change:
MCD, 20, $26.31
$.72, 3%, $22.73
.8%, 7,752,000 shares, $30.96
$.40, 2,884,600 shares, down $.19
7. McDonalds—Ticker symbol, PE ratio, and last price:
6. Men’s Wearhouse—High and low for the past 52 weeks:
$31.25, $21.41
CHAPTER 20—SECTION I
Answer Exercises 6–10 based on the stock quotation table to the right:
T20-2
T20-3
REVIEW EXERCISES | CHAPTER 20—SECTION I
Calculate the missing information for the following stocks:
Company
11.
12.
13.
14.
15.
Earnings Annual Current Price Current Price-Earnings
per Share Dividend per Share
Yield
Ratio
Sears
Wendy’s
Rubbermaid
Ford
Disney
$6.59
.77
1.31
$1.60
.24
.45
1.60
.30
4.92
1.41
$46.13
17.63
27.50
64
42.38
3.5%
1.4%
1.6%
2.5%
.7%
Annual dividend
Current price
1.60
5 .0346 5 3.5%
5
46.13
Current price per share
Price earnings ratio 5
Earnings per share
46.13
5
57
6.59
11. Current yield
5
13. Earnings per share 5
14. Current price 5
Current price
27.5
5
5 $1.31
PE ratio
21
$1.60
Dividend
5
5 $64
Yield
2.5%
15. Dividend 5 Price 3 Yield 5 42.38 3 .7% 5 $.30
7
23
21
13
30
REVIEW EXERCISES
|
CHAPTER 20—SECTION I
100
350
900
775
500
Company
DuPont
Wal-Mart
Heinz
Goodyear
AmExpress
$47.20
18.42
28.37
37.75
25.11
Purchase
Price
$56.06
29.19
36.25
34.50
28.86
Selling
Price
3%
2
3
1.5
3
Proceeds 5 $5,437.82
Gain (loss) 5 5,437.82 2 4,861.60 5 $576.22
3%
2
3
1.5
3
Proceeds
$ 5,437.82
9,997.57
31,646.25
26,310.56
13,997.10
Total
Cost
$ 4,861.60
6,585.15
26,298.99
29,723.41
12,931.65
$
576.22
3,412.42
5,347.26
(3,412.85)
1,065.45
Gain
(or Loss)
Value of shares 5 350 3 29.19
5 $10,216.50
Commission
5 300 3 29.19 3 2% 5 2 175.14
5 50 3 29.19 3 3% 5 2 43.79
Proceeds 5 $9,997.57
Gain (loss) 5 9,997.57 2 6,585.15 5 $3,412.42
5 $6,447.00
17. Cost of shares 5 350 3 18.42
Commission 5 300 3 18.42 3 2% 5 1 110.52
5 50 3 18.42 3 3% 5 1 27.63
Total cost 5 $6,585.15
add 1%
add 1%
Commissions
Buy Sell Odd Lot
5 $4,720.00
16. Cost of shares 5 100 3 47.20
Commission
5 100 3 47.20 3 3% 5 1 141.60
Total cost 5 $4,861.60
Value of shares 5 100 3 56.06
5 $5,606.00
Commission
5 100 3 56.06 3 3% 5 2 168.16
16.
17.
18.
19.
20.
Number
of Shares
Calculate the total cost, proceeds, and gain (or loss) for the following stock market transactions:
T20-4
T20-5
REVIEW EXERCISES | CHAPTER 20—SECTION I
5 $25,533.00
18. Cost of shares 5 900 3 28.37
Commission
5 900 3 28.37 3 3% 5 1 765.99
Total cost 5 $26,298.99
Value of shares 5 900 3 36.25
5 $32,625.00
Commission
5 900 3 36.25 3 3% 5 2 978.75
Proceeds 5 $31,646.25
Gain (loss) 5 31,646.25 2 26,298.99 5 $5,347.26
5 $29,256.25
19. Cost of shares 5 775 3 37.75
Commission 5 700 3 37.75 3 1.5% 5 1 396.38
5 75 3 37.75 3 2.5% 5 1 70.78
Total cost 5 $29,723.41
Value of shares 5 775 3 34.50
5 $26,737.50
Commission
5 700 3 34.50 3 1.5% 5 2 362.25
5 75 3 34.50 3 1.5% 5 2
64.69
Proceeds 5 $26,310.50
Gain (loss) 5 $26,310.50 2 29,723.41 5 ( $3,412.85 )
5 $12,555.00
20. Cost of shares 5 500 3 25.11
Commission
5 500 3 25.11 3 3% 5 1 376.65
Total cost 5 $12,931.65
Value of shares 5 500 3 28.86
5 $14,430.00
Commission
5 500 3 28.86 3 3% 5 2 432.90
Proceeds 5 $13,997.10
Gain (loss) 5 13,997.10 2 12,931.65 5 $1,065.45
T20-6
REVIEW EXERCISES | CHAPTER 20—SECTION I
21. The Maxtor Corporation has 500,000 shares of common stock outstanding. If a dividend
of $425,000 was declared by the company directors last year, what is the dividend per
share of common stock?
Dividend per share 5
5
Total common dividend
Number of shares
$425,000
5 $.85 per share
500,000
22. The board of directors of Saratoga, Inc., has declared a dividend of $3,000,000. The
company has 700,000 shares of preferred stock that pay $.90 per share and 1,600,000
shares of common stock.
a.
What are the dividends due the preferred shareholders?
Total preferred dividend 5 Number of shares 3 Dividend per share
5 700,000 3 .90
5 $630,000
b.
What is the dividend per share of common stock?
Total common dividend 5 $3,000,000 2 $630,000 5 $2,370,000
Dividend per common share 5
$2,370,000
5 $1.48
1,600,000
23. Keller Corporation has 1,800,000 shares of $100 par value, 5%, cumulative preferred
stock and 9,750,000 shares of common stock. Although no dividend was declared for
the past 2 years, a $44,000,000 dividend has been declared for this year.
a.
How much is due the preferred shareholders?
Dividend per share preferred 5 $100 3 5% 5 $5.00
Total dividend due preferred stockholders 5
1,800,000 3 $5.00 3 3 years 5 $27,000,000
b.
What is the dividend per share of common stock?
Dividend per share common stock
$44,000,000 2 $27,000,000 5 $17,000,000
17,000,000
5 $1.74 per share
9,750,000
T20-7
REVIEW EXERCISES | CHAPTER 20—SECTION I
24. Alpha Airlines is currently selling at $47.35. The earnings per share is $3.14, and the
dividend is $1.70.
a.
What is the current yield of the stock?
Current yield 5
Annual dividend
Current price
$1.70
5 3.6%
$47.35
What is the price-earnings ratio?
Current price per share
Price-earnings ratio 5
Earnings per share
$47.35
Price-earnings ratio 5
5 15
$3.14
5
b.
25. You purchase 650 shares of Prism Corporation common stock at $44.25 per share.
A few months later, you sell the shares at $57.29. Your stockbroker charges 3%
commission on round lots and an extra 1 12 % on odd lots.
a.
What is the total cost of the purchase?
Cost of shares 5 650 3 $44.25
5 $28,762.50
Commission 5 600 3 $44.25 3 3% 5 1 796.50
5 50 3 $44.25 3 4.5% 5 1 99.56
Total cost
5 $29,658.56
b.
What are the proceeds on the sale?
Value of shares 5 650 3 $57.29
5 $37,238.50
Commission
5 600 3 $57.29 3 3% 5 2 1,031.22
5 50 3 $57.29 3 4.5% 5 2 128.90
Proceeds
5 $36,078.38
What is the gain or loss on the transaction?
c.
Gain 5 $36,078.38 2 $29,658.56 5 $6,419.82
T20-8
BUSINESS DECISION | CHAPTER 20—SECTION I
DOLLAR-COST AVERAGING
26. Though investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are
purchased in fixed dollar amounts at regular intervals, regardless of what direction the
market is moving. This strategy is also called the constant dollar plan.
You are considering a hypothetical $1,200 investment in Polynomial Corporation
stock. Your choice is to invest the money all at once or dollar-cost average at the rate
of $100 per month for one year.
a.
If you invested all of the money in January, and bought the shares for $10.00 each,
how many shares could you buy?
Shares purchased 5
b.
1,200
5 120
10.00
From the following chart of share prices, calculate the number of shares that would
be purchased each month using dollar-cost averaging and the total shares for the year.
Amount Cost per
Shares
Invested
Share Purchased
Month
January
February
March
April
May
June
$100
100
100
100
100
100
$10.00
9.55
8.80
7.75
9.15
10.25
10.0
10.5
11.4
12.9
10.9
9.8
Month
Amount
Invested
July
August
September
October
November
December
$100
100
100
100
100
100
Cost per
Shares
Share Purchased
$11.50
10.70
9.80
10.60
9.45
10.15
8.7
9.3
10.2
9.4
10.6
9.9
Total shares 5 123.6
c.
What is the average price you pay per share if you purchase them all in January?
Average price 5
d.
1,200
5 $10.00
120
What is the average price you pay per share if you purchase them using dollarcost averaging?
Average price 5
1,200
5 $9.71
123.6
T20-9
REVIEW EXERCISES | CHAPTER 20—SECTION I I
Answer Exercises 1–10 based on the following bond quotation table:
1. Hlthso—Coupon rate and current yield:
2. IBM 6 12 28—Closing price and net change:
3. AnnTaylr—Maturity year and volume:
4. Argosy—Volume and closing price:
5. AMR—Coupon rate, maturity year, and net change:
6. JCPL—Current yield and closing price:
7. Which bonds are selling for exactly par value?
8. Which bond has the highest current yield?
9. Which bond had the greatest net change? How much?
10. Which bond had the highest price? How much?
912 %, 9.3%
106, 13
2004, 115 Bonds
100 Bonds, 11234
9%, 2016, 1 21
7.2%, 104 12
KaufB 7 34 04
KCS En, 20.9%
IntgHlth, 26 12
HomeDpt, 236
REVIEW EXERCISES
|
CHAPTER 20—SECTION II
1
2
1
7
4
3
8
8
1
9
2
5
6
8
5
79
3
4
7
111
8
95
1
4
1
102
2
86
3 months
23 days
5 months
78 days
2 months
11. Accrued interest 5 1,000 3 Coupon rate 3 Time
2
I 5 1,000 3 .055 3
12
5 $9.17
15. Ford
14. Hilton
13. AT&T
12. U.S. West
11. Xerox
Time
Coupon Market Since Last
Company
Rate
Price
Interest
10
15
8
5
1
11,433.10
12,199.80
7,959.20
5,226.05
$876.67
Total price 5 (Current market price 1 Accrued
interest 1 Commission) 3 Number
of bonds
5 (862.50 1 9.17 1 5.00) 3 1
5 $876.67
8.00
16.56
10.00
34.90
9.75
4.50
15.71
6.07
$5.00
$9.17
Commission
Accrued
per
Bonds
Total
Interest
Bond Purchased Price
Calculate the accrued interest and the total purchase price of the following bond purchases:
T20-10
1
REVIEW EXERCISES
|
CHAPTER 20—SECTION II
1
4
1
8
2
5
10
8
3
9
4
5
6
8
6
89
3
8
1
104
8
77
1
2
3
108
4
91
21
5 $3.65
360
39 days
1 month
85 days
4 months
21 days
Proceeds 5 (915.00 1 3.65 2 6.00) 3 10 5 $9,126.50
I 5 1,000 3 .0625 3
16. I 5 PRT
Proceeds 5 Current market price 1
Accrued interest 2 Commission
20. Nabisco
19. Mobil
18. USX
17. Apple
16. Textron
Time
Coupon Market Since Last
Company
Rate
Price
Interest
9.00
7.18
12.00
25.09
7.25
8.50
28.33
8.13
$6.00
$3.65
20
7
15
4
10
20,788.60
6,262.41
11,746.35
4,429.32
$9,126.50
Commission
Accrued
per
Bonds
Total
Interest
Bond Purchased Price
Calculate the accrued interest and the total proceeds of the following bond sales:
T20-11
REVIEW EXERCISES
|
5
8
1
9
4
1
7
2
7
11
8
3
5
8
6
20
Annual interest
Current market price
$66.25
5 0.0727 5 7.3%
$911.25
Current yield 5
Current yield 5
53.75
118.75
Ca
1
8
125
1
4
1
73
2
3
84
8
108
92.50
75.00
91
Market
Price
$66.25
Annual
Interest
Kroger, annual interest 5 1,000 3 .06625 5 $66.25
21. Annual interest 5 Par value 3 Coupon rate
25. Pacific Telesis
24. McDonald’s
23. Blockbuster
22. Bordens
21. Kroger
Company
Coupon
Rate
6.4
16.2
6
8.6
7.3%
Current
Yield
CHAPTER 20—SECTION II
Calculate the annual interest and current yield for the following bonds:
T20-12
T20-13
REVIEW EXERCISES | CHAPTER 20—SECTION I I
26. On March 1, Kelly Keeler bought 10 Slick Oil Company bonds with a coupon rate
of 9 18. The purchase price was 88 78, and the commission was $6.00 per bond. Slick
Oil bonds pay interest on February 1 and August 1.
a.
What is the current yield of the bond?
Annual interest 5 Par value 3 Coupon rate
Annual interest 5 1,000 3 .09125 5 $91.25
Annual interest
Market price
$91.25
5 10.3%
Current yield 5
$888.75
What is the total purchase price of the bonds?
Current yield 5
b.
Total purchase price 5 (Current market price 1 Accrued interest 1 Commission)
3 Number of bonds
1
Accrued interest 5 1,000 3 .09125 3
5 $7.60
12
Total purchase price 5 (888.75 1 7.60 1 6.00) 3 10 5 $9,023.50
c.
If Kelly sold the bonds on November 1 for 93 78 , what are the proceeds from the
sale?
Proceeds of sale 5 Current market price 1 Accrued interest 2 Commission 3
Number of bonds
3
Accrued interest 5 1,000 3 .09125 3
5 $22.81
12
Proceeds 5 (938.75 1 22.81 – 6.00) 3 10 5 $9,555.60
T20-14
BUSINESS DECISION | CHAPTER 20—SECTION I I
TAXABLE OR TAX-FREE BONDS
27. More than 50,000 state and local governments and their agencies borrow money by
issuing municipal bonds to build, repair, or improve schools, streets, highways, hospitals, sewer systems, and so on. When the federal income tax law was adopted in 1913,
interest on municipal bonds was excluded from federal taxation. As a result, municipal bond investors are willing to accept lower yields than those they can obtain from
taxable bonds.
As part of your portfolio, you are considering investing $50,000 in bonds. You
have the choice of investing in tax-exempt municipal bonds yielding 5.5% or corporate bonds yielding 7.5% in taxable interest income.
a.
What is the annual interest income and tax status of the municipal bond investment?
b.
Annual income 5 50,000 3 .055 5 $2,750, tax free
What is the annual interest income and tax status of the corporate bond investment?
c.
d.
Annual income 5 50,000 3 .075 5 $3,750, taxable
If you are in the 30% marginal tax bracket for federal income taxes and your state
and local taxes on that income amount to an additional 6%, what is the after-tax
income on the corporate bonds?
After-tax income 5 3,750 3 .65 5 $2,400
What is the actual percent yield realized on the corporate bonds after taxes?
Yield 5
2,400
5 4.8%
50,000
REVIEW EXERCISES
|
CHAPTER 20—SECTION III
Answer Exercises 1–12 based on the following mutual fund quotation table:
T20-15
4. Which Rembrandt fund has the only positive return in the yearIntlEqTr. 10.2%
to-date?
3. Rightime Group: BlueC—NAV change and 5-year return:
20.03, 110.2%
8. Which Rembrandt fund has the best 39-week return?
IntlEqTr. 115.4%
7. What does NL mean in the offer price of some funds?
No Load, no commission
6. Which Smith Barney A funds have the best and worst
39-week returns?
Best: Intl A 125.1%, Worst: Utlty A 24.4%
CHAPTER 20—SECTION III
2. Retirement Investment Trust: Balanced—Objective and net
Stocks and Bonds $16.76
asset value:
|
5. Which Rightime Group fund is a bond fund? What is
GVSc, E
its ranking?
REVIEW EXERCISES
1. Smith Barney A: MuCalA—Offer price and 39-week
$12.74, 21.2%
return:
T20-16
$12.82
15.44
25.69
13.09
15.44
26.97
13.64
Net Asset
Value
|
$13.35
Offer
Price
REVIEW EXERCISES
.55
1.28
0
$.53
Sales
Charge
4.2
5
0
4.1
Sales
Charge %
CHAPTER 20—SECTION III
9. Mutual fund sales charge 5 Offer price 2 Net asset value
Sales charge 5 13.35 2 12.82 5 $.53
Sales charge % 5 Sales charge 4 Net asset value
.53
⫽ 4.1%
Sales charge % ⫽
12.82
9. Smith Barney A:
MuFl A
10. Retire Invst Trust:
Income
11. Rightime Group:
Grth
12. Smith Barney A:
USGvtA
Fund
T20-17
REVIEW EXERCISES
|
CHAPTER 20—SECTION III
5,000,000
6,100,000
8,500,000
1,300,000
Total investment
Offer price
$10,000
⫽
$16.10
$80,000,000 ⫺ $2,300,000
5,000,000
⫽ $15.54
⫽ 621.118 Shares
Shares purchased ⫽
$15.54
8.23
10.68
10.96
Shares
Net Asset
Outstanding
Value
Total assets ⫺ Total liabilities
Number of shares outstanding
$2,300,000
1,800,000
4,650,000
750,000
Total
Liabilities
13. Net asset value ⫽
13. $80,000,000
14. 52,000,000
15. 95,400,000
16. 15,000,000
Total
Assets
$16.10
9.50
11.15
NL
Offer
Price
$10,000
5,000
50,000
25,000
621.118
526.316
4,484.305
2,281.022
Total
Shares
Investment Purchased
Calculate the net asset value and number of shares purchased for the following funds
(round shares to thousandths, three decimal places):
T20-18
REVIEW EXERCISES
|
CHAPTER 20—SECTION III
Net Asset
Value
$15.30 $1,530.00 $18.80
10.40 5,200.00 12.90
4.85 4,850.00
6.12
7.30 5,110.00
5.10
Total
Cost
$1,880.00
6,450.00
6,120.00
3,570.00
Proceeds
Return on investment ⫽
395.00
⫽ 25.8%
1,530.00
Total cost ⫽ 100 ⫻ $15.30 ⫽ $1,530.00
Proceeds ⫽ 100 ⫻ $18.80 ⫽ $1,880.00
1,880.00 2 1,530.00 1 (.45 3 100)
Total gain ⫽ $395.00
Total gain (or loss) 5 Gain (or loss) 1 Dividends
Total gain
Return on investment ⫽
Total cost of purchase
17. Gain (or loss) on investment 5 Proceeds 2 Total cost
17. 100
18. 500
19. 1,000
20. 700
Shares
Offer
Price
$.45
.68
1.25
0
Per Share
Dividends
$395.00
1,590.00
2,520.00
(1,540.00)
Total Gain
(or Loss)
25.8
30.6
52
230.1
Return on
Investment
(%)
Calculate the total cost, proceeds, total gain or loss, and return on investment for the
following mutual fund investments. The offer price is the purchase price of the shares,
and the net asset value is the price at which the shares were later sold:
T20-19
T20-20 REVIEW EXERCISES | CHAPTER 20—SECTION I I I
21. A mutual fund has an offer price of $13.10 and a net asset value of $12.35.
a.
What is the sales charge?
b.
Sales charge 5 13.10 2 12.35 5 $.75
What is the sales charge percent?
Sales percent 5
.75
5 6.1%
12.35
22. A mutual fund has total assets of $25,000,000 and liabilities of $3,500,000. If there are
8,600,000 shares outstanding, what is the net asset value of the fund?
Net asset value 5
25,000,000 2 3,500,000
5 $2.50
8,600,000
23. William Stokes invested a lump sum of $10,000 in a mutual fund with an offer price
of $14.50. How many shares did he purchase?
Shares purchased 5
$10,000
5 689.655
$14.50
24. Charlie Beavin purchased 500 shares of Advantage Resource Fund for an offer price
of $8.90 per share. He later sold the shares at a net asset value of $10.50 per share.
During the time that he owned the shares the fund paid a dividend of $.75 per share
three times. What is Charlie’s return on investment?
Cost 5 500 3 $8.90 5 $4,450.00
Proceeds 5 500 3 $10.50 5 $5,250.00
Dividends 5 (.75 3 500) 3 3 5 $1,125.00
5,250.00 2 4,450.00 1 1,125.00
Return on investment 5
5 43.3%
4,450.00
T20-21
BUSINESS DECISION | CHAPTER 20—SECTION I I I
CAPITAL GAINS
25. There are many tax rules and regulations that you should be aware of when investing; whether it be in stocks, bonds, mutual funds, real estate, or collectibles. Capital
gains are proceeds derived from your investments. Unless they are specified as being
tax-free, such as municipal bonds, you must pay capital gains taxes on these funds.
Capital gains are taxed in one of two ways. If the investment was held for one
year or less, this is considered short-term and is taxed as ordinary income at your regular income tax rate. If the investment was held for more than one year, it is considered long-term, and qualifies for various tax discounts, as follows:
Capital Gains Rates
a.
Stocks Held
10% or 15% tax bracket
Over 15% bracket
1 year or less
Over 1 year
10% or 15%
5%
25%–35%
15%
If you are in the 15% tax bracket, how much tax would be saved by waiting for
an investment to become long-term before selling, if your taxable profit from this
investment was $25,000?
Long-term tax savings 5 15% 2 5% 5 10%
25,000 3 .10 5 $2,500
b.
How much would you save if you were in the 35% tax bracket?
Long-term tax savings 5 35% 2 15% 5 20%
25,000 3 .20% 5 $5,000