Week 4 Assignment Instructions

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Instructions for Problem Set #4

1. a) (Sale Price) – (Purchase Price) = Profit earned on each share

b) Profit earned on each share * number of shares purchased = Total amount of profit

2. a) Step 1: (End of year price – beginning year price) = Loss Step 2: (Loss + annual income of $100) = Dollar Amount of Return Step 3: Dollar Amount of Return / Beginning year price = % return b) Hint: it should be a negative number

3. a) After-Tax Earnings / Outstanding Shares of Common Stock = Earnings Per Share b) Market Value of Stock / Earnings Per Share = P/E Ratio c) (Reported assets – Liabilities) / Outstanding Shares = Book Value per Share

4. a) (Purchase price) * ( % corporate bond pays) = Annual Dollar Amount Interest b) Annual Dollar Amount of Interest / (% comparable bonds are paying) = Approximate Value c) Hint: If you bought something that has now gone up in price relatively, it has increased in value.

5. a) (Amount invested – commission ) / price per share at time of investment = # of shares Bill could buy without margin d) Step 1: (Amount invested from his pocket + amount borrowed on margin to invest ) = Total amount (Step 2: Total amount – commission) / price per share = # of shares bill could be with Margin e) Step 1 (Sale price – purchase price) * # of shares from b) = Profit Step 2 Profit – commission = Total Profit After Commission

6. a) (9 % * 1000) / Current Market Price = Current Yield b) Step 1 (9% of 1000) + (Face Value – Market Value) / 10 periods = Numerator Step 2 (Market Value + Face Value) / 2 = Denominator Step 3 Numerator / Denominator = Yield to Maturity
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