# Personal Financial Planning Study Set 5

## Quiz 11 :Investment Planning

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Which of the following would offer the best return on investment Assume that you buy $5,000 in stock in all three cases, and ignore interest and transaction costs in all your calculations. a. Buy a stock at$60 without margin, and sell it a year later at $90. b. Buy a stock at$20 with 50 percent margin, and sell it a year later at $30. c. Buy a stock at$40 with 75 percent margin, and sell it a year later at $55. Free Essay Answer: Answer: (a) Calculate the number of shares that can be purchased, if$5,000 is spent on a stock that costs $60 per share. Substitute$5,000 for Total spent and $60 for Cost per share. 83 shares of the stock can be purchased. Calculate the profit. Substitute 83 for Number of shares,$90 for Sell price and $60 for Buy price. (b) Calculate the number of shares that can be purchased if$5,000 is spent on a stock that costs $20 per share. Substitute$5,000 for Total spent and $20 for Cost per share. Since there is a 50 percent margin, the other 250 shares can be borrowed. 500 shares of the stock can be purchased (or borrowed). Calculate the profit. Substitute 500 for number of shares,$30 for Sell price and $20 for Buy price. (c) Calculate the number of shares that can be purchased if$5,000 is spent on a stock that costs $40 per share. Substitute$5,000 for Total spent and $40 for Cost per share. Since there is a 75 percent margin, the investor must supply at least 75 percent of the stock. The other 25 percent may be borrowed. In other words, 75% of the total number of shares that can be traded is 125. 166 shares of the stock can be purchased (or borrowed). Calculate the profit. Substitute 166 for number of shares,$55 for Sell price and $40 for Buy price. Profit from Option (a) is$2,490
Profit from Option (b) is $5,000 Profit from Option (c) is$2,490
Conclusion: Based on the above calculations and compare the profit from each option, Option (b) has got the highest returns on investment. Then select Option (b).

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Investing involves making informed decisions, which means researching companies and industries before plunking down your hard-earned money! An excellent source of information about a company is the company itself, particularly its annual report to stockholders. In this project, you'll examine the annual stockholders' report of a company in which you are interested. The annual report is a document that provides financial and operating information about a company to its owners, the stockholders. Obtain a copy of the latest annual report of the company you are researching. Copies can be found in many public and college libraries, at local brokerage offices, or on the company's Web site. Carefully study the annual report and then prepare a corporate profile of the firm you selected. Your profile should include the following elements: a. Name of the company, its ticker symbol, and the exchange on which it trades b. Current market price of the stock and its percentage change from 1, 3, and 5 years ago (try to find a chart of its stock price)c. Location of its corporate headquarters, names of its officers, and percentage of inside ownership d. Brief description of the company, including its major products or services e. Brief history of the company f. Major competitors g. Sales and profit summaries h. Other relevant financial ratios and measures i. Recent developments and future plans Based on your findings, would you consider this company for a potential investment Why or why not
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a)
Company name: CC Company
Exchange: NYSE
b)
Current market price of stock: $41.63 per share Market stock price 1 year ago:$38 per share
Market stock price 3 years ago: $33 per share Market stock price 5 years ago:$25 per share
Calculate the percentage price change using the following formula, which is as follows;
The following table G1 shows the percentage change of the market stock for the given information, which is as follows:
c)
Its headquarters is at in A, G state.
Its Chairman of the Board and CEO is M K.
5% of shares are held by insiders.
d)
The CC Company mission is to refresh the world, to inspire moments of optimism and happiness, and to create value and make a difference.
Its main products are sugary, carbonated drinks such as C-C, S and F.
e)
The CC drink was created in 1886 and patented in 1887.
In 1899, The CC Company started franchising bottling operations in the U S.
f)CC's competitors include Dr. P S Group, Inc. , N and P, Inc.
g)
Sales and profit summaries can be found on their Income Statement.
Their sales for 2013 were $46,854,000,000. Their profit for 2013 was$8,584,000,000.
h)
the following table G2, shows the financial ratios and measures of the company CC, which is as follows:
i)
A recent development is that The CC Company paid $2.2 billion for 17% of Monster Beverage. The CEO of The CC Company, M K, acknowledged that the company's 2013 volume and revenue results did not meet expectations. The company has plans to accelerate growth, expand their profitable portfolio, maximize productivity, win at the point of sale and invest in the next generation of leaders. Based on my findings, it can be suggestible for the company for an future investment. Its EPS Growth and Return on Equity look good. Although sales were slow in 2013, there are plans to grow. On the downside, it's possible sugary drinks will soon be a thing of the past as consumers see it as a cause of obesity. Tags Choose question tag Use Worksheet 11.1 Linda Scales is a young career woman who's now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, what she would really like to do is open a bookstore of her own. She would like to open her store in about eight years and figures she'll need about$50,000 in capital to do so. Given that she thinks she can make about 10 percent on her money, use Worksheet 11.1 to answer the following questions. a. How much would Linda have to invest today, in one lump sum, to end up with $50,000 in eight years b. If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in eight years c. How about if she already has$10,000 socked away; how much would she have to put away annually to accumulate the required capital in eight years d. Given that Linda has an idea of how much she needs to save, briefly explain how she could use an investment plan to help reach her objective. REFERENCE:
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(a)
Use the worksheet shown below, and the Table of Future Value Factors to determine the lump sum as shown below.
Person L should invest $23,321 today in order to end up with$50,000 in eight years.
(b)
Use the worksheet shown below, and the Table of Future Value Annuity Factors to determine the amount as shown below.
Person L will need to put away $4,372.16 annually for eight years to get$50,000.
(c)
Person L will need to put away $2,497 for eight years to accumulate$50,000.
(d)
Now that Person L knows how much she needs to save, she can use an investment plan to decide how to save it. She could save the money periodically, such as at the beginning of every year. The money has to be put into an investment program in order to obtain 10% return on her money. For example, she could put her money into a mutual fund that has a history of earning 10% a year.

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Suppose Leonard Krauss places an order to buy 100 shares of Google. Explain how the order will be processed if it's a market order. Would it make any difference if it had been a limit order Explain.
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Col Bernard is 42 years old, single, and works as a designer for a major architectural firm. He is well paid and over time has built up a sizable portfolio of investments. He considers himself an aggressive investor and, because he has no dependents to worry about, likes to invest in high-risk/high-return securities. His records show the following information. 1. In 2002, Col bought 200 shares of eBay (NASDAQ; symbol EBAY) at $15 a share. (The stock has since split 2 for 1 two times, so he now owns 800 shares of eBay.)2. In 2003 he bought 250 shares of Watson Pharmaceuticals (NYSE; symbol WPI) at$32.25 a share. 3. In 2000, Col bought 200 shares of United Technologies Corp. (NYSE; symbol UTX) at $24 a share. (Col now owns 400 shares because the stock has since split 2 for 1.)4. In early 2009, he bought 450 shares of JPMorgan Chase (NYSE; symbol JPM) at$16 a share. 5. Also in 2009, Col bought 400 shares of Pepsico (NYSE; symbol PEP) at $52.50 a share. 6. He has$12,000 in a 1 percent money market mutual fund. Every three months or so, Col prepares a complete, up-to-date inventory of his investment holdings. Critical Thinking Questions 1. Use a form like Worksheet 11.2 to prepare a complete inventory of Col's investment holdings. ( Note: Look in the latest issue of The Wall Street Journal, or pull up an online source such as http:// finance.yahoo.com , to find the most recent closing price of the five stocks in Col's portfolio.)2. What is your overall assessment of Col's investment portfolio Does it appear that his personal net worth is improving because of his investments 3. Based on the worksheet you prepared in Question 1, do you see any securities that you think Col should consider selling What other investment advice might you give Col (Reference Worksheet 11.2)
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Contrast the NASDAQ and National Market System with the OTCBB.
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What are regional exchanges, and what role do they play
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What is the difference between the broker and dealer markets
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Assume that the following quote for Merck, a NYSE stock, appeared on August 1, 2012 (Tuesday) on Yahoo! Finance ( http://finance.yahoo.com/qs=MRK ql=0 ): Given this information, answer the following questions. a. At what price did the stock sell at the time of the quote b. What is the stock's price/earnings ratio What does that indicate c. What is the last price at which the stock traded on the prior trading day d. What is the stock's dividend yield e. What are the highest and lowest prices at which the stock traded during the latest 52-week period f. How large is the market capitalization of the company
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Explain the difference between a bull market and a bear market. Discuss the frequency with which returns as bad as those during 2007-2009 occur. How would you characterize the current state of the stock market
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Harmony Shadwell wants to buy 300 shares of Google, which is currently selling in the market for $757.49 a share. Rather than liquidate all her savings, she decides to borrow through her broker. Assume that the margin requirement on common stock is 50 percent. If the stock rises to$800 a share by the end of the year, show the dollar profit and percentage return that Harmony would earn if she makes the investment with 50 percent margin. Contrast these figures to what she'd make if she uses no margin.
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Like many married couples, Gene and Stacey Uselton are trying their best to save for two important investment objectives: (1) an education fund to put their two children through college; and (2) a retirement nest egg for themselves. They want to have set aside $40,000 per child by the time each one starts college. Given that their children are now 10 and 12 years old, Gene and Stacey have 6 years remaining for one child and 8 for the other. As far as their retirement plans are concerned, the Useltons both hope to retire in 20 years, when they reach age 65. Both Gene and Stacey work, and together, they currently earn about$90,000 a year. Six years ago, the Useltons started a college fund by investing $6,000 a year in bank CDs. That fund is now worth$45,000-enough to put one child through an in-state college. They also have $50,000 that they received from an inheritance invested in several mutual funds and another$20,000 in a taxsheltered retirement account. Gene and Stacey believe that they'll easily be able to continue putting away $6,000 a year for the next 20 years. In fact, Stacey thinks they'll be able to put away even more, particularly after the children are out of school. The Useltons are fairly conservative investors and feel they can probably earn about 6 percent on their money. (Ignore taxes for the purpose of this exercise.) Critical Thinking Questions 1. Use Worksheet 11.1 to determine whether the Useltons have enough money right now to meet their children's educational needs. That is, will the$45,000 they've accumulated so far be enough to put their children through school, given they can invest their money at 6 percent Remember, they want to have $40,000 set aside for each child by the time each one starts college. 2. Regarding their retirement nest egg, assume that no additions are made to either the$50,000 they now have in mutual funds or to the $20,000 in the retirement account. How much would these investments be worth in 20 years, given that they can earn 6 percent 3. Now, if the Useltons can invest$6,000 a year for the next 20 years and apply all of that to their retirement nest egg, how much would they be able to accumulate given their 6 percent rate of return 4. How do you think the Useltons are doing with regard to meeting their twin investment objectives Explain. REFERENCE:
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How does a primary market differ from a secondary market Where are most securities traded: in the primary or the secondary market
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What's the difference between an investment plan and a capital accumulation plan
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How much profit (if any) would Clay Sorensen make if he short-sold 300 shares of a stock at $100 a share and the price of the stock suddenly tumbled to$70
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Briefly discuss the relationship between investing and personal financial planning.
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Describe the operations of the NASDAQ market. Compare it with an exchange, such as the NYSE.
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Listed below are three pairs of stocks. Look at each pair and select the security you'd like to own, given that you want to select the one that's worth more money. Then, after making all three of your selections, use The Wall Street Journal or some other source to find the latest market value of the two securities in each pair. a. 50 shares of Berkshire Hathaway (stock symbol BRKA) or 150 shares of JP Morgan Chase (stock symbol JPM). (Both stocks are listed on the NYSE.)b. 100 shares of Home Depot (symbol HD), a NYSE stock; or 100 shares of Apple (symbol AAPL), a NASDAQ stock. c. 150 shares of Wal-Mart (symbol WMT) or 50 shares of Verizon (symbol VZ). (Both are listed on the NYSE.)How many times did you pick the one that was worth more money Did the price of any of these stocks surprise you If so, which one(s) Does the price of a stock represent its value Explain.
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Given that Precision Solutions, Inc.'s stock is currently selling for $40 a share, calculate the amount of money that Aaron Dalton will make (or lose) on each of the following transactions. Assume that all transactions involve 100 shares of stock, and ignore brokerage commissions. a. He short-sells the stock and then repurchases the borrowed shares at$50. b. He buys the stock and then sells it sometime later at $50. c. He short-sells the stock and then repurchases the borrowed shares at$25.