7e
Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner
Investments
PowerPoint Presentation by Domenic Tavella, MBA
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
1
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PERFORMANCE OBJECTIVES
Section I Stocks
20-1: Understanding stocks and distributing
dividends on preferred and common stock
20-2: Reading a stock quotation table
20-3: Calculating current yield of a stock
20-4: Determining the price-earnings ratio of a
stock
20-5: Computing the cost, proceeds, and gain (or
loss) on a stock transaction
Section II Bonds
20-6: Understanding bonds and reading a bond
quotation table
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
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PERFORMANCE OBJECTIVES
continued
Section II Bonds
20-7: Calculating the cost of purchasing bonds and
the proceeds from the sale of bonds
20-8: Calculating the current yield of a bond
Section III Mutual Funds
20-9: Understanding mutual funds and reading a
mutual fund quotation table
20-10: Calculating the sales charge and sales charge
percent of a mutual fund
20-11: Calculating the net asset value of a mutual
fund
20-12: Calculating the number of shares purchased of
a mutual fund
20-13: Calculating return on investment
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a publicly accessible website, in whole or in part.
3
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Stocks
financial risk
• The chance you take of either making or losing money on an
investment.
conservative investments
• Low-risk investments, such as government bonds or certificates
of deposit.
speculative investments
• High-risk investments, such as stocks in new companies, junk
bonds, or options and futures.
diversified portfolio
• An investment strategy that is a mixture of stocks, bonds, cash
equivalents, and other types of investments.
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a publicly accessible website, in whole or in part.
4
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Stocks
continued
stocks, or equities
• An investment that is an ownership share of a corporation.
share
• One unit of stock or ownership in a corporation.
stock certificate
• The official document that represents an ownership share in a
corporation.
shareholder
• The person who owns shares of stock in a corporation.
dividends
• A distribution of a company’s profits to its shareholders.
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a publicly accessible website, in whole or in part.
5
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Stocks
continued
publicly held corporation
• A corporation whose stock is available to be bought and sold by
the general investing public.
• The opposite of a privately held corporation.
common stock
• A class of corporate stock in which the investor has voting
rights and shares directly in the success or failure of the
business.
preferred stock
• A class of corporate stock in which the investor has preferential
rights over the common shareholders to dividends and a
company’s assets.
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a publicly accessible website, in whole or in part.
6
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Stocks
continued
par value
• An arbitrary monetary figure specified in the
corporate charter for each share of stock and printed
on each stock certificate.
• The dividend for par value preferred stock is quoted
as a percent of the par value.
no-par value stock
• Stock that does not have a par value.
• The dividend for no-par value preferred stock is
quoted as a dollar amount per share.
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a publicly accessible website, in whole or in part.
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Preferred Stock
cumulative preferred stock
• A type of preferred stock that receives a dividend
each year.
• When no dividends are paid one year, the amount
owed accumulates and must be paid to cumulative
preferred shareholders before any dividends can be
paid to common shareholders.
dividends in arrears
• The amount of dividends that accumulate and are
owed to cumulative preferred shareholders for past
years in which no dividends were paid.
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a publicly accessible website, in whole or in part.
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EXHIBIT 20-1
Risk vs. Return
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a publicly accessible website, in whole or in part.
9
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EXHIBIT 20-2
Stock Certificate
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a publicly accessible website, in whole or in part.
10
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STEPS
STEP 1
TO DISTRIBUTE DIVIDENDS ON PREFERRED AND
COMMON STOCK
If the preferred stock is cumulative, any dividends that are in arrears are paid
first; then the preferred dividend is paid for the current period. When the
dividend per share is stated in dollars (no-par stock), go to Step 2. When the
dividend per share is states as a percent (par stock), multiply the par value by
the dividend rate.
Dividend per share (preferred) = Par value × Dividend rate
STEP 2
Calculate the total amount of the preferred stock dividend by multiplying the
number of preferred shares by the dividend per share.
Total preferred dividend = Number of shares × Dividend per share
STEP 3
Calculate the total common stock dividend by subtracting the total preferred
stock dividend from the total dividend declared.
Total common dividend = Total dividend – Total preferred dividend
STEP 4
Calculate the dividends per share for common stock by dividing the total
common stock dividend by the number of shares of common stock.
Total common dividend
Dividend per share (common) =
Number of shares (common)
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Dividends on Preferred and
Common Stock Example
A firm has 300,000 shares of $100 par value, 7.5%
cumulative preferred stock and 5,200,000 shares of
common stock outstanding. Although no dividend
was declared for last year, a $7,000,000 dividend has
been declared for this year. Calculate the amount of
dividends due the preferred shareholders and the
dividend per share of common stock.
Dividend per share = Par value x Dividend rate
Dividend per share = 100 × 7.5% = $7.50
Total preferred dividend per year =
Preferred shares × Dividend per share
Total preferred dividend per year =
300,000 × 7.50 = $2,250,000
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a publicly accessible website, in whole or in part.
12
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Dividends on Preferred and
Common Stock Example continued
Total preferred dividend due= Arrears + Current
2,250,000 + 2,250,000 = $4,500,000
Total common dividend =
Total dividend – Preferred dividend
Total common dividend =
7,000,000 – 4,500,000 = $2,500,000
Dividend per share 
Total common dividend
Number of common shares
Dividend per share 
2,500,000
 $.48
5,200,000
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
13
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EXHIBIT 20-3
Stock Quotation Table – The Wall Street Journal Online
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a publicly accessible website, in whole or in part.
14
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Reading Stock Quotations
Column 1 (Name McDonald’s Corporation)
• Company name.
Column 2 (Symbol MCD)
• Symbol used to easily identify a particular stock. The symbol for
McDonald’s stock is MCD.
Column 3 (Open 73.47)
• Opening price of the stock that trading day. On that day,
McDonald’s stock opened at $73.47.
Column 4 (High 74.07)
• Highest price of the stock during the trading day. During that
day, the McDonald’s stock price reached a high of $74.07.
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a publicly accessible website, in whole or in part.
15
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Reading Stock Quotations
continued
Column 5 (Low 72.86)
• Lowest price of the stock during the trading day. During that
day, the McDonald’s stock price reached a low of $72.86.
Column 6 (Close 73.99)
• The last price of the trading day. That day, the McDonald’s
stock price closed at $73.99.
Column 7 (Net Change 0.83)
• The difference, or net change, between the “close” price and
the previous day’s “close” price. Positive change is indicated in
green. Negative change is indicated by a minus sign, and in
red. That day, the McDonald’s stock price closed up $0.83 per
share.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
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Reading Stock Quotations
continued
Column 8 (%Change 1.13)
• The trading day’s percentage change in price. Positive change
is indicated in green. Negative change is indicated by a minus
sign, and in red. That day, the McDonald’s stock price went up
1.13%.
Column 9 (Volume 6,568,927)
• The volume or number of shares traded during the day. On that
day, more than 6.5 million shares of McDonald’s were traded.
Column 10 (52 Week High 74.07)
• Highest price of the stock during the preceding 52-week period.
In the past year, the McDonald’s stock price reached a high of
$74.07.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
17
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Reading Stock Quotations
continued
Column 11 (52 Week Low 53.88)
• Lowest price of the stock during the preceding 52-week period. In
the past year, the McDonald’s stock price reached a low of $53.88.
Column 12 (Dividend 2.20)
• The amount of dividends paid out to shareholders in the past year.
When there are no dividends, the column shows “. . .”. (See Cisco
Systems, Inc.) Last year McDonald’s paid stockholders a dividend
of $2.20 per share.
Column 13 (Yield 2.97)
• Yield percent. Last year’s dividend as a percent of the current price
of the stock. When there are no dividends, the column shows “. . .”.
(See Cisco Systems, Inc.) Last year, McDonald’s dividend yielded
stockholders a 2.97% return on their investment.
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a publicly accessible website, in whole or in part.
18
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Reading Stock Quotations
continued
Column 14 (P/E 17)
• Price-earnings ratio. A number that indicates investors’
confidence in a stock.
• It is the ratio of the current price of the stock to the earnings per
share for the past year.
• The price of McDonald’s stock was selling at a P/E ratio or
multiple of 17 times the earnings per share.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
19
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Current Yield for a Stock
current yield
• A percentage measure of how much an investor is
earning on a stock compared with other investments.
It is calculated by dividing the annual dividend per
share by the current price of the stock.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
20
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STEPS
TO CALCULATE THE CURRENT YIELD OF A
STOCK
STEP 1 Divide the annual dividend per share by the current
price of the stock.
Annual dividend per share
Current yield =
Current price of the stock
STEP 2 Convert the answer to a percent, rounding to the
nearest tenth.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
21
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Current Yield for a Stock Example
A corporation paid a dividend of $.68 per
share last year. If yesterday’s last price was
$12.84, what is the current yield on the stock?
Current yield 
Annual dividend per share
Current price of the stock
Current yield 
$.68
 5.3%
$12.84
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a publicly accessible website, in whole or in part.
22
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The Price-Earnings Ratio of a
Stock
price-earnings ratio, or PE ratio
• A ratio that shows the relationship between the price
of a stock and a company’s earnings for the past 12
months; one of the most widely used tools for
analyzing stock.
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a publicly accessible website, in whole or in part.
23
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STEPS
TO DETERMINE THE PRICE-EARNINGS RATIO OF
A STOCK
STEP 1 Divide the current price of the stock by the earnings
per share for the past 12 months.
Current price per share
Price-earnings ratio =
Earnings per share
STEP 2 Round answer to the nearest whole number (may be
written as a ratio, X:1).
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
24
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Price-Earnings Ratio Example
A firm’s stock is currently selling for $37.19
per share. If the firm had earnings per share
of $6.70 in the past 12 months, what is the
stock’s price-earnings ratio?
Price-earnings ratio 
Current price per share
Earnings per share
Price-earnings ratio 
37.19
 5.55  6 : 1
6.70
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a publicly accessible website, in whole or in part.
25
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Stock Transactions
stock exchanges
• Marketplaces where stocks, bonds, and mutual
funds are bought and sold in the form of an auction.
stockbroker’s commission
• The fee a stockbroker charges for assisting in the
purchase or sale of shares of stock; a percent of the
cost of the stock transaction.
proceeds
• The amount of money that an investor receives after
selling a stock. It is calculated as the value of the
shares less the broker’s commission.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
26
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Stock Transactions
continued
stockbroker
• A professional in stock market trading and investments who
acts as an agent in the buying and selling of stocks or other
securities.
full-service broker
• Stockbrokers who provide services such as research and
investment advice in addition to assisting in the purchase or
sale of stock. Commissions generally range from 3% to 5% of
the cost of the transaction.
discount broker
• Minimum service stockbrokers who simply execute stock
purchase and sale transactions. Commissions generally range
from 1% to 2% of the cost of the transaction.
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a publicly accessible website, in whole or in part.
27
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Stock Transactions
continued
round lot
• Shares of stock purchased in multiples of 100.
odd lot
• The purchase of less than 100 shares of stock.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
28
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STEPS
TO COMPUTE THE COST, PROCEEDS, AND GAIN
(OR LOSS) ON A STOCK TRANSACTION
Cost of purchasing stock
STEP 1 Calculate the cost of the shares.
Cost of shares = Price per share × Number of shares
STEP 2 Compute the amount of the broker’s
commission.
Broker’s commission = Cost of shares × Commission rate
STEP 3 Determine the total cost of the stock purchase.
Total cost = Cost of shares + Broker’s commission
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
29
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STEPS
TO COMPUTE THE COST, PROCEEDS, AND GAIN
(OR LOSS) ON A STOCK TRANSACTION continued
Proceeds from selling stock
STEP 1 Calculate the value of shares on sale.
Value of shares = Price per share × Number of shares
STEP 2 Compute the amount of the broker’s commission.
Broker’s commission = Cost of shares × Commission rate
STEP 3 Determine the proceeds by subtracting the
commission from the value of the shares.
Proceeds = Value of shares – Broker’s commission
Gain (or loss) on the transaction
Gain (or loss) on transaction = Proceeds – Total cost
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
30
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Stock Transactions Example
You purchased 650 shares of common stock at $44.25 per
share. Later, you sold them at $57.29. The stockbroker
charges 3% commission on round lots and an extra 1½%
on odd lots. Calculate the total cost, the proceeds and the
gain (or loss) on the transaction.
Cost of stock:
Cost of shares = Price per share × Number of shares
Cost of shares = 44.25 × 650 = $28,762.50
Broker’s commission = Cost of shares × Commission rate
Round lot = 600 × 44.25 × .03 = $796.50
Odd lot = 50 × 44.25 × .045 = $99.56
Total commission = 796.50 + 99.56 = $896.06
Total purchase cost = Cost of stock + Commissions
Total purchase cost = 28,762.50 + 896.06 = $29,658.56
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
31
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Stock Transactions Example
continued
Calculate the gain (or loss) on the transaction:
Proceeds from sale:
Value of shares = Price per share × Number of shares
Value of shares = 57.29 × 650 = $37,238.50
Commission:
Round lot = 600 × 57.29 × .03 = $1,031.22
Odd lot = 50 × 57.29 × .045 = $128.90
Total commission = 1,031.22 + 128.90 = $1,160.12
Proceeds = 37,238.50 – 1,160.12 = $36,078.38
Gain on transaction:
Gain = Proceeds – Total purchase cost
Gain = 36,078.38 – 29,658.56 = $6,419.82
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a publicly accessible website, in whole or in part.
32
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Bonds
bond
• A loan or an IOU in the form of a long-term interestbearing note, in which the bond buyer lends money
to the bond issuer.
secured bonds
• Bonds that are backed by a lien on specific collateral
such as a plant, equipment, or other corporate asset.
unsecured bonds, or debentures
• Bonds backed only by the general credit of the
issuing corporation, not on specific collateral pledged
as security.
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a publicly accessible website, in whole or in part.
33
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Bonds
continued
convertible bonds
• Bonds that can be converted or exchanged at the
owner’s option for a certain number of shares of
common stock.
callable bonds
• Bonds that the issuer has the right to call or
repurchase before the maturity date. Bonds are
called when interest rates are falling and the issuer
issues new bonds at a lower rate.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
34
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Bonds
continued
coupon rate
• A fixed percentage of the par value of a bond that is
paid to the bondholder on a regular basis.
premium
• When a bond is selling for more than its par value, it
is said to be selling at a premium. This occurs during
periods when prevailing interest rates are declining.
discount
• When a bond is selling for less than its par value, it is
said to be selling at a discount. This occurs during
periods when prevailing interest rates are rising.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
35
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EXHIBIT 20-4
Bond Certificate
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a publicly accessible website, in whole or in part.
36
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EXHIBIT 20-5
Corporate Bond Quotation Table—The Wall Street Journal Online
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
37
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Reading Bond Quotations
Column 1 (Issue Name Kraft Foods)
• Company name.
Column 2 (Symbol KFT.GD)
• Symbol used to easily identify a particular bond. The symbol for
the Kraft Foods’ bond is KFT.GD.
Column 3 (Coupon 5.625%)
• The coupon rate of the bond. A fixed percent of the par value of
the bond. The Kraft Foods bond is paying interest of 5.625% of
par value.
Column 4 (Maturity Nov 2014)
• The maturity date of the bond. The date the company has to
buy back the bonds. This particular Kraft Foods bond has a
maturity date of November 2014.
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a publicly accessible website, in whole or in part.
38
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Reading Bond Quotations
continued
Column 5 (Rating Baa2/BBB-/BBB-)
• The rating of the bond from three different rating services:
Moody’s, S&P, and Fitch. The Kraft Foods bond is rated Baa2
by Moody’s; BBB- by S&P; and BBB- by Fitch. For further rating
information, consult the web sites of the individual rating
services.
Column 6 (High 105.458)
• The highest price of the trading day. That day, the Kraft Foods
bond price reached a high of $1,054.58.
Column 7 (Low 105.044)
• The lowest price of the trading day. That day, the Kraft Foods
bond price reached a low of $1,050.44.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
39
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Reading Bond Quotations
continued
Column 8 (Last 105.370)
• The closing price of the trading day. That day, the Kraft Foods
bond had a closing price of $1,053.70.
Column 9 (Change 0.349)
• The difference, or net change, between the closing price and
the previous day’s closing price. Positive change is indicated in
green. Negative change is indicated by a minus sign, and in
red. That day, the Kraft Foods bond price closed up $3.49.
Column 10 (Yield% 5.338)
• The yield percent of the bond calculated by dividing the coupon
rate by the current price of the bond. That day, the yield on the
Kraft Foods bond was 5.338%.
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a publicly accessible website, in whole or in part.
40
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Purchasing Bonds
accrued interest
• When bonds are traded between the stated interest
payment dates, interest accumulated from the last
payment date must be paid to the seller by the buyer.
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a publicly accessible website, in whole or in part.
41
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STEPS
TO CALCULATE THE COST OF PURCHASING A
BOND
STEP 1 Calculate the accrued interest on the bond since
the last payment date using I = PRT.
STEP 2 Calculate the price to purchase the bond.
Price per bond =
Current market price + Accrued interest + Commission
STEP 3 Calculate total purchase price.
Total purchase price = Price per bond × Number of bonds purchased
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
42
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Purchasing Bonds Example
What is the purchase price of 20 Silver Lake Corporation
bonds with a coupon rate of 6 ¼% and a current market
price of 91.375? The commission charge is $10 per bond.
The date of the transaction is October 1, and the bond pays
interest on February 1 and August 1.
Accured interest  1,000  .0625 
2
 $10.42
12
Price per bond = Market price + Accrued interest + Commission
Price per bond = 913.75 + 10.42 + 10 = $934.17
Total purchase price = Price per bond x # of bonds purchased
Total purchase price = 934.17 × 20 = $18,683.40
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
43
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STEPS
TO CALCULATE THE PROCEEDS FROM THE SALE
OF A BOND
STEP 1 Calculate the accrued interest on the bond since
the last payment date by using I = PRT.
STEP 2 Calculate the proceeds per bond.
Proceeds = Current market price + Accrued interest – Commission
STEP 3 Calculate the total proceeds from the sale.
Total proceeds = Proceeds per bond × Number of bonds sold
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
44
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Proceeds from the Sale of a Bond
Example
What are the proceeds of the sale of five bonds with a
coupon rate of 8.875 and market price of $99.00? The
commission charge is $10 per bond. The date of the
transaction is 122 days since the last interest payment.
Accured interest  1,000  .08875 
122
 $30.08
360
Proceeds =
Current market price + Accrued interest – Commission
Proceeds =
990 + 30.08 – 10.00 = $1,010.08
Total proceeds =
Proceeds per bond × number of bonds sold
Total proceeds =
1,010.08 × 5 = $5,050.40
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
45
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STEPS
TO CALCULATE CURRENT YIELD OF A BOND
STEP 1 Calculate the annual interest and current price
of the bond.
STEP 2 Divide the annual interest of the bond by the
current market price.
Current yield =
Annual interest
Current market price
STEP 3 Convert the answer to a percent, rounding to
the nearest tenth.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
46
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Current Yield of a Bond Example
Calculate the current yield for a bond with a coupon rate of
9.375% and currently selling at a discount of 84.75.
Annual interest = Par value x Coupon rate
Annual interest = 1,000 x .09375 = $93.75
Current price = Par value x Price percent
Current price = 1,000 x .8475 = $847.50
Current yield 
Current yield 
Annual interest
Current market price
93.75
 .1106  11.1%
847.50
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a publicly accessible website, in whole or in part.
47
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Mutual Funds
mutual funds, or investment trusts
• Corporations that are investment pools of money
with a wide variety of investment goals.
net asset value (NAV)
• The dollar value of one share of a mutual fund’s
stock. It is the price investors receive when they sell
their shares of the fund.
offer price
• The price per share investors pay when purchasing a
mutual fund. Offer price includes the net asset value
plus the broker’s commission.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
48
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Mutual Funds
continued
load
• The sales charge or broker’s commission on a
mutual fund.
front-end load
• The sales charge or commission on a mutual fund
when it is paid at the time of purchase.
back-end load
• The sales charge or commission on a mutual fund
when it is paid at the time of sale.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
49
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EXHIBIT 20-6
Mutual Fund Quotation Table—The Wall Street Journal Online
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
50
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Reading a Mutual Fund Quotation
Table
Column 1 (Family/Fund Fidelity Invest/Magellan)
• Mutual funds are listed alphabetically by the fund’s family name
and in subcategories by the various funds available within that
family.
• The family name is Fidelity Invest and the particular fund name
is Magellan.
Column 2 (Symbol FMAGX)
• Symbol used to easily identify a particular fund. The symbol for
the Fidelity Invest Magellan Fund is FMAGX.
Column 3 (NAV 58.16)
• Net asset value; the current dollar value of one share of the
fund’s stock. This is the price you receive when you sell your
shares of the fund.
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a publicly accessible website, in whole or in part.
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7e
Reading a Mutual Fund Quotation
continued
Table
Column 4 (Change –0.09)
• The difference, or net change, between the net asset value and
the previous day’s net asset value. That day, the Fidelity Invest
Magellan Fund net asset value was down $0.09.
Column 5 (YTD % Return –9.5)
• The year-to-date percentage return on investment. That day,
the Fidelity Invest Magellan Fund year-to-date return was down
9.5%.
Column 6 (3-yr % Change –11.3)
• The 3-year percentage change in the net asset value. In the
past three years, the Fidelity Invest Magellan Fund has
decreased 11.3%.
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a publicly accessible website, in whole or in part.
52
7e
STEPS
STEP 1
TO CALCULATE MUTUAL FUND SALES CHARGE
AND SALES CHARGE PERCENT
Calculate mutual fund sales charge by
subtracting the net asset value from the offer
price.
Mutual fund sales charge = Offer price – Net asset value
STEP 2
Calculate sales charge percent by dividing
the sales charge by the net asset value.
Sales charge percent =
Sales charge
Net asset value
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a publicly accessible website, in whole or in part.
53
7e
Sales Charge and Sales Charge
Percent of a Mutual Fund Example
What are the sales charge and the sales
charge percent for a mutual fund with an offer
price of $9.85 per share and net asset value of
$9.21?
Mutual fund sales charge = Offer price – Net asset value
Mutual fund sales charge = 9.85 – 9.21 = $.64
Sales charge percent 
Sales charge
.64

 6.9%
NAV
9.21
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a publicly accessible website, in whole or in part.
54
7e
STEPS
STEP 1
TO CALCULATE NET ASSET VALUE OF A MUTUAL
FUND
Calculate net asset value by subtracting the
total liabilities from the total assets of the
fund and dividing by the number of shares
outstanding.
Net asset value (NAV) =
STEP 2
Total assets – Total liabilities
Number of shares outstanding
Round the answer to dollars and cents.
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a publicly accessible website, in whole or in part.
55
7e
Calculating the Net Asset Value of
a Mutual Fund Holding Example
A mutual fund has total assets of $12,000,000 and
liabilities of $3,000,000. If there are 1,000,000 shares
outstanding, what is the net asset value of the fund?
Net asset value 
Net asset value 
Total assets - Total liabilities
Number of shares outstanding
12,000,000  3,000,000
 9.00 per share
1,000,000
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a publicly accessible website, in whole or in part.
56
7e
STEPS
TO CALCULATE NUMBER OF SHARES
PURCHASED OF A MUTUAL FUND
STEP 1 Calculate number of shares by dividing the
amount of the investment by the offer price of
the fund. For no-load funds, use the net asset
value as the denominator.
Number of shares purchased = Total investment
Offer price
STEP 2 Round the number of shares to thousandths
(three decimal places).
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a publicly accessible website, in whole or in part.
57
7e
Shares Purchased from a Mutual
Fund Example
Wayne has invested $10,000 in a no-load
mutual fund with a net asset value of $12.25.
How many shares did he purchase?
Shares purchased 
Total investment
10,000

 816.327
Offer price
12.25
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a publicly accessible website, in whole or in part.
58
7e
Return on Investment
return on investment (ROI)
• The basic measure of how an investment is doing.
Used to compare various investments on an equal
basis. Calculated as a percent, by dividing the total
gain on the investment by the total cost of purchase.
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a publicly accessible website, in whole or in part.
59
7e
STEPS
TO CALCULATE RETURN ON INVESTMENT
STEP 1 Calculate the dollar gain (or loss) on the sale of the
investment by subtracting the total cost from the
proceeds of the sale.
Gain (or loss) on investment = Proceeds – Total cost
STEP 2 Compute total gain (or loss) by adding any dividends
received on stocks or interest received on bonds to the
gain (or loss) on sale.
Total gain (or loss) = Gain (or loss) + Dividends or interest
STEP 3 Calculate return on investment by dividing the total gain
(or loss) by the total cost of purchase. Round your
answer to the nearest tenth percent.
Total gain (or loss)
Return on investment (ROI) = Total cost of purchase
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a publicly accessible website, in whole or in part.
60
7e
Return on Investment Example
Peg purchased 2,000 shares of a fund for an offer
price of $8.60 per share. She later sold the shares at a
net asset value of $9.18 per share. During the time Peg
owned the shares, the fund paid dividends of $.27 and
$.42 per share. What is Peg’s return on investment?
Total cost of purchase = 2,000 x 8.60 = $17,200
Proceeds from sale = 2,000 x 9.18 = $18,360
Gain on sale = Proceeds – Total cost
Gain on sale = 18,360 – 17,200 = $1,160
Dividend 1 = 2,000 x .27 =
$540
Dividend 2 = 2,000 x .42 = + $840
Total dividends
= $1,380
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a publicly accessible website, in whole or in part.
61
7e
Return on Investment Example
continued
Total gain = Gain on sale + Dividends
Total gain = 1,160 + 1,380 = $2,540
Return on investment(ROI) 
Total gain
Total cost of purchase
Return on investment(ROI) 
2,540
 .1476  14.8%
17,200
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a publicly accessible website, in whole or in part.
62