Investment Fundamentals

Topics: Bond, Investment / Pages: 8 (1823 words) / Published: Feb 12th, 2012

Investment Fundamentals
American InterContinental University

Abstract This paper will calculate the returns on five investments to illustrate how they work. It will also discuss the different types of investments a person can make, along with the differences between the various types of bonds. Furthermore it will state what bond ratings indicate, and the two major agencies that are in charge of assigning these ratings

Introduction As stated by Gitman, Joehnk, & Smart (2011, p. 3) “Any asset into which funds can be placed with the expectation that it will generate positive income and/or preserve or increase its value.” A dollar in hand today is worth more than a dollar to be received in the future because if you had the money now, you could invest it, earn interest and end up with more than one dollar in the future. Return on Investments Calculations
The return on a stock that does not pay a dividend of which you buy 100 shares for \$25.00 per share and sell the 100 shares for \$27.50 a year later, a commission fee of \$50.00 for securities, equals to \$ 200.00, 92.60% profit. To compute the original price of the shares, 100 shares multiplied by the purchase price \$25.00 equals to \$2,500.00. The Sale price was calculated by multiplying the number of shares (100) by the selling price (\$27.50) which equals to \$2,750.0. To compute the return on the stocks the original price (\$2,500.00) was subtracted from the sale price less the commission fee (\$2,700.00). The return on a 5-year bond that was purchase for \$1,000 pays a 6% yearly rate. It is paid semiannually, which is held until maturity equals to \$1,343.92, 74.41%. The formula that was used to compute the return is FVn=PV(1+rPER)n PER.
The current yield on a bond priced at \$89 has a 6% coupon is \$1,483.33 which equals to a 67.42% gain on the return. The formula that was used to compute the current yield is market price divided by the

References: AIU Online (2011). FINA405: Unit 1: Investment Fundamentals. (Multimedia Presentation). Retrieved on June 7, 2011 from AIU Online Virtual Campus. Investment: FINA405-1102B-01 Gitman, L. J., Joehnk, M. D., &amp; Smart, S. B. (2011). Fundamentals of Investing (11th ed.). Boston, MA: Prentice Hall Investopedia ULC (2011). Hedge Fund. Retrieved on June 11, 2011 from http://www.investopedia.com/terms/h/hedgefund.asp Wisegeek (2011). What is a Derivative Security? Retrieved on June 11, 2011 from http://www.wisegeek.com/what-is-a-derivative-security.htm