Question

Sandy made several investments. She bought 1000 shares of a company’s stock for $8.60/share, she bought a bond with a face value of $2500 and a coupon rate of 7%, and she invested $5000 into a fund that is expected to grow by 3.5% per year.

(a) Sandy pays a broker a commission of $14 to buy and sell stock. After one year, Sandy sold all her shares, when they were worth $9.15/share. What was her net gain or loss? Show your work.
(b)The bond Sandy purchased will mature in 10 years. How much interest will she receive semiannually?
(c)How long will it take the fund she invested in to be worth $10,000?
(d)Sandy’s gross annual income is $51,350. She is paid biweekly and has 5% deducted from her paycheck for her 403(b). Her employer matches her deduction, up to 4%. How much is deposited into Sandy’s 403(b) each payday?

Answer 1

a) Sandy's net gain or loss from selling her shares is $536. b) Sandy will receive $87.50 in interest semiannually from the bond. c) It will take approximately 12 years for the fund to be worth $10,000.

Step-by-step explanation:

(a) To calculate Sandy's net gain or loss from selling her shares, we need to subtract the total cost of buying and selling the shares from the total revenue generated from selling the shares. The total cost of buying the shares is 1000 shares x $8.60/share = $8600. The total cost of selling the shares is the broker commission of $14. The total revenue from selling the shares is 1000 shares x $9.15/share = $9150. Therefore, the net gain or loss is ($9150 - $8600) - $14 = $536.

(b) To calculate the interest Sandy will receive semiannually from the bond, we need to multiply the face value of the bond by the coupon rate and divide by 2 since it pays semiannually. The interest received every 6 months is $2500 x 7% / 2 = $87.50.

(c) To calculate how long it will take for the fund to be worth $10,000, we can use the formula for compound interest. The future value of an investment is given by the formula A = P(1 + r/n)^(nt), where A is the future value, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years. Plugging in the values, we get $10,000 = $5000(1 + 3.5%/1)^(1 * t). Solving for t, we find that t is approximately 11.99 years, or about 12 years.