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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