FIN/420

Week 3 Learning Team Problems

Complete the following problems as a team: Due on Saturday the  21st

• Assume that you are choosing an investment for your retired parents. What are the advantages and disadvanges of each of the following?

• a bond issued by the federal government,
  • a state or local government,
  • or a corporation?

• Which would you recommend for your retired parents? Justify your answer.

• Five years ago, you purchased a $1,000 corporate bond issued by General Electric. The interest rate for the bond was 5%. Comparable bonds are paying 6% today.

• What is the approximate dollar price for which you could sell your General Electric bond?

• In your own words, describe why your bond decreased in value.

• Sidney took a $200 cash advance by using checks linked to her credit card account. The bank charges a 2% cash advance fee on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived.

• What was the cash advance fee?
  • What was the interest for 1 month at an 18% APR?
  • What was the total amount she paid?
  • What if she had made the purchase with her credit card and paid off her bill in full promptly?

• Retirees often make a choice between the following:  What are the advantages and disadvantages of both.

• 1) taking a lump-sum pension payout and purchasing an annuity (or having the company convert their benefit to an annuity for them) or

• 2) using the lump-sum payout to purchase a portfolio of bonds intended to provide them an income stream.  Compare the advantages and disadvantages of each strategy.

 

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