ɪɪ. ʀᴇᴀᴅ ᴇᴀᴄʜ ꜱᴛᴀᴛᴇᴍᴇɴᴛ ᴄᴀʀᴇꜰᴜʟʟʏ. ɪᴅᴇɴᴛɪꜰʏ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ ᴡʜᴇᴛʜᴇʀ ɪᴛ ɪꜱ ᴀ “ʙᴏɴᴅ” ᴏʀ “ꜱᴛᴏᴄᴋ”, ᴛʜᴇɴ ᴡʀɪᴛᴇ ʏᴏᴜʀ ᴀɴꜱᴡᴇʀ ᴏɴ ᴀ ꜱᴇᴘᴀʀᴀᴛᴇ ᴀɴꜱᴡᴇʀ ꜱʜᴇᴇᴛ. ₁. ɪꜰ ᴀ ᴄᴏᴍᴘᴀɴʏ ʜᴀꜱ ₁₀, ₀₀₀ ꜱʜᴀʀᴇꜱ ᴏꜰ ꜱᴛᴏᴄᴋ ᴏᴜᴛꜱᴛᴀɴᴅɪɴɢ ᴀɴᴅ ᴏɴᴇ ᴘᴇʀꜱᴏɴ ᴏᴡɴꜱ ₁, ₀₀₀ ꜱʜᴀʀᴇꜱ, ᴛʜᴀᴛ ᴘᴇʀꜱᴏɴ ᴡᴏᴜʟᴅ ᴏᴡɴ ᴀɴᴅ ʜᴀᴠᴇ ᴄʟᴀɪᴍ ᴛᴏ ₁₀% ᴏꜰ ᴛʜᴇ ᴄᴏᴍᴘᴀɴʏ’ꜱ ᴀꜱꜱᴇᴛꜱ ᴀɴᴅ ᴇᴀʀɴɪɴɢꜱ. ₂. ɪꜰ ᴄᴜʀʀᴇɴᴛ ɪɴᴛᴇʀᴇꜱᴛ ʀᴀᴛᴇꜱ ᴀʀᴇ ₅% ʟᴏᴡᴇʀ ᴛʜᴀɴ ʏᴏᴜʀ ʀᴀᴛᴇ ᴏɴ ᴀ ᴍᴏʀᴛɢᴀɢᴇ ᴏɴ ᴡʜɪᴄʜ ʏᴏᴜ ʜᴀᴠᴇ ₄ ʏᴇᴀʀꜱ ʟᴇꜰᴛ ᴛᴏ ᴘᴀʏ, ɪᴛ’ꜱ ɢᴏɪɴɢ ᴛᴏ ᴍᴀᴛᴛᴇʀ ᴍᴜᴄʜ ʟᴇꜱꜱ ᴛʜᴀɴ ɪᴛ ᴡᴏᴜʟᴅ ꜰᴏʀ ꜱᴏᴍᴇᴏɴᴇ ᴡʜᴏ ʜᴀꜱ ₂₀ ʏᴇᴀʀꜱ ᴏꜰ ᴍᴏʀᴛɢᴀɢᴇ ᴘᴀʏᴍᴇɴᴛꜱ ʟᴇꜰᴛ. ₃. ʏᴏᴜ ᴍɪɢʜᴛ ʙᴜʏ ᴀ ₁₀ ʏᴇᴀʀ, ₁₀,₀₀₀ ʙᴏɴᴅ ᴘᴀʏɪɴɢ ₅% ɪɴᴛᴇʀᴇꜱᴛ. ᴛʜᴇ ɪꜱꜱᴜᴇʀ, ɪɴ ᴇxᴄʜᴀɴɢᴇ, ᴡɪʟʟ ᴘʀᴏᴍɪꜱᴇ ᴛᴏ ᴘᴀʏ ʏᴏᴜ ɪɴᴛᴇʀᴇꜱᴛ ᴏɴ ᴛʜᴀᴛ ₇,₅₀₀ ᴇᴠᴇʀʏ ꜱɪx ᴍᴏɴᴛʜꜱ ᴀɴᴅ ᴛʜᴇɴ ʀᴇᴛᴜʀɴ ʏᴏᴜʀ ₁₀,₀₀₀ ᴀꜰᴛᴇʀ ₁₀ ʏᴇᴀʀꜱ. ₄. ʙʟᴜᴇ-ᴄʜɪᴘ ꜱᴛᴏᴄᴋꜱ ᴀʀᴇ ꜱᴛᴏᴄᴋꜱ ɪꜱꜱᴜᴇᴅ ʙʏ ʜɪɢʜ Qᴜᴀʟɪᴛʏ, ʟᴀʀɢᴇ ᴄᴏᴍᴘᴀɴɪᴇꜱ ᴀɴᴅ ɢᴇɴᴇʀᴀʟʟʏ ʜᴀᴠᴇ ꜱᴛᴇᴀᴅʏ ᴅɪᴠɪᴅᴇɴᴅ. ₅. ɪᴛ ᴏꜰꜰᴇʀꜱ ᴀɴ ᴏᴡɴᴇʀꜱʜɪᴘ ꜱᴛᴀᴋᴇ ɪɴ ᴛʜᴇ ᴄᴏᴍᴘᴀɴʏ ᴀɴᴅ ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ʀɪꜱᴋɪᴇʀ ᴀɴᴅ ᴍᴏʀᴇ ᴠᴏʟᴀᴛɪʟᴇ.

ɪɪ. ʀᴇᴀᴅ ᴇᴀᴄʜ ꜱᴛᴀᴛᴇᴍᴇɴᴛ ᴄᴀʀᴇꜰᴜʟʟʏ. ɪᴅᴇɴᴛɪꜰʏ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ ᴡʜᴇᴛʜᴇʀ ɪᴛ ɪꜱ ᴀ “ʙᴏɴᴅ” ᴏʀ “ꜱᴛᴏᴄᴋ”, ᴛʜᴇɴ ᴡʀɪᴛᴇ ʏᴏᴜʀ ᴀɴꜱᴡᴇʀ ᴏɴ ᴀ ꜱᴇᴘᴀʀᴀᴛᴇ ᴀɴꜱᴡᴇʀ ꜱʜᴇᴇᴛ. ₁. ɪꜰ ᴀ ᴄᴏᴍᴘᴀɴʏ ʜᴀꜱ ₁₀, ₀₀₀ ꜱʜᴀʀᴇꜱ ᴏꜰ ꜱᴛᴏᴄᴋ ᴏᴜᴛꜱᴛᴀɴᴅɪɴɢ ᴀɴᴅ ᴏɴᴇ ᴘᴇʀꜱᴏɴ ᴏᴡɴꜱ ₁, ₀₀₀ ꜱʜᴀʀᴇꜱ, ᴛʜᴀᴛ ᴘᴇʀꜱᴏɴ ᴡᴏᴜʟᴅ ᴏᴡɴ ᴀɴᴅ ʜᴀᴠᴇ ᴄʟᴀɪᴍ ᴛᴏ ₁₀% ᴏꜰ ᴛʜᴇ ᴄᴏᴍᴘᴀɴʏ’ꜱ ᴀꜱꜱᴇᴛꜱ ᴀɴᴅ ᴇᴀʀɴɪɴɢꜱ. ₂. ɪꜰ ᴄᴜʀʀᴇɴᴛ ɪɴᴛᴇʀᴇꜱᴛ ʀᴀᴛᴇꜱ ᴀʀᴇ ₅% ʟᴏᴡᴇʀ ᴛʜᴀɴ ʏᴏᴜʀ ʀᴀᴛᴇ ᴏɴ ᴀ ᴍᴏʀᴛɢᴀɢᴇ ᴏɴ ᴡʜɪᴄʜ ʏᴏᴜ ʜᴀᴠᴇ ₄ ʏᴇᴀʀꜱ ʟᴇꜰᴛ ᴛᴏ ᴘᴀʏ, ɪᴛ’ꜱ ɢᴏɪɴɢ ᴛᴏ ᴍᴀᴛᴛᴇʀ ᴍᴜᴄʜ ʟᴇꜱꜱ ᴛʜᴀɴ ɪᴛ ᴡᴏᴜʟᴅ ꜰᴏʀ ꜱᴏᴍᴇᴏɴᴇ ᴡʜᴏ ʜᴀꜱ ₂₀ ʏᴇᴀʀꜱ ᴏꜰ ᴍᴏʀᴛɢᴀɢᴇ ᴘᴀʏᴍᴇɴᴛꜱ ʟᴇꜰᴛ. ₃. ʏᴏᴜ ᴍɪɢʜᴛ ʙᴜʏ ᴀ ₁₀ ʏᴇᴀʀ, ₁₀,₀₀₀ ʙᴏɴᴅ ᴘᴀʏɪɴɢ ₅% ɪɴᴛᴇʀᴇꜱᴛ. ᴛʜᴇ ɪꜱꜱᴜᴇʀ, ɪɴ ᴇxᴄʜᴀɴɢᴇ, ᴡɪʟʟ ᴘʀᴏᴍɪꜱᴇ ᴛᴏ ᴘᴀʏ ʏᴏᴜ ɪɴᴛᴇʀᴇꜱᴛ ᴏɴ ᴛʜᴀᴛ ₇,₅₀₀ ᴇᴠᴇʀʏ ꜱɪx ᴍᴏɴᴛʜꜱ ᴀɴᴅ ᴛʜᴇɴ ʀᴇᴛᴜʀɴ ʏᴏᴜʀ ₁₀,₀₀₀ ᴀꜰᴛᴇʀ ₁₀ ʏᴇᴀʀꜱ. ₄. ʙʟᴜᴇ-ᴄʜɪᴘ ꜱᴛᴏᴄᴋꜱ ᴀʀᴇ ꜱᴛᴏᴄᴋꜱ ɪꜱꜱᴜᴇᴅ ʙʏ ʜɪɢʜ Qᴜᴀʟɪᴛʏ, ʟᴀʀɢᴇ ᴄᴏᴍᴘᴀɴɪᴇꜱ ᴀɴᴅ ɢᴇɴᴇʀᴀʟʟʏ ʜᴀᴠᴇ ꜱᴛᴇᴀᴅʏ ᴅɪᴠɪᴅᴇɴᴅ. ₅. ɪᴛ ᴏꜰꜰᴇʀꜱ ᴀɴ ᴏᴡɴᴇʀꜱʜɪᴘ ꜱᴛᴀᴋᴇ ɪɴ ᴛʜᴇ ᴄᴏᴍᴘᴀɴʏ ᴀɴᴅ ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ʀɪꜱᴋɪᴇʀ ᴀɴᴅ ᴍᴏʀᴇ ᴠᴏʟᴀᴛɪʟᴇ.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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ɪɪ. ʀᴇᴀᴅ ᴇᴀᴄʜ ꜱᴛᴀᴛᴇᴍᴇɴᴛ ᴄᴀʀᴇꜰᴜʟʟʏ. ɪᴅᴇɴᴛɪꜰʏ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ ᴡʜᴇᴛʜᴇʀ ɪᴛ ɪꜱ ᴀ
“ʙᴏɴᴅ” ᴏʀ “ꜱᴛᴏᴄᴋ”, ᴛʜᴇɴ ᴡʀɪᴛᴇ ʏᴏᴜʀ ᴀɴꜱᴡᴇʀ ᴏɴ ᴀ ꜱᴇᴘᴀʀᴀᴛᴇ ᴀɴꜱᴡᴇʀ ꜱʜᴇᴇᴛ.

₁. ɪꜰ ᴀ ᴄᴏᴍᴘᴀɴʏ ʜᴀꜱ ₁₀, ₀₀₀ ꜱʜᴀʀᴇꜱ ᴏꜰ ꜱᴛᴏᴄᴋ
ᴏᴜᴛꜱᴛᴀɴᴅɪɴɢ ᴀɴᴅ ᴏɴᴇ ᴘᴇʀꜱᴏɴ ᴏᴡɴꜱ ₁, ₀₀₀ ꜱʜᴀʀᴇꜱ, ᴛʜᴀᴛ ᴘᴇʀꜱᴏɴ
ᴡᴏᴜʟᴅ ᴏᴡɴ ᴀɴᴅ ʜᴀᴠᴇ ᴄʟᴀɪᴍ ᴛᴏ ₁₀% ᴏꜰ ᴛʜᴇ ᴄᴏᴍᴘᴀɴʏ’ꜱ ᴀꜱꜱᴇᴛꜱ ᴀɴᴅ
ᴇᴀʀɴɪɴɢꜱ.
₂. ɪꜰ ᴄᴜʀʀᴇɴᴛ ɪɴᴛᴇʀᴇꜱᴛ ʀᴀᴛᴇꜱ ᴀʀᴇ ₅% ʟᴏᴡᴇʀ ᴛʜᴀɴ ʏᴏᴜʀ ʀᴀᴛᴇ
ᴏɴ ᴀ ᴍᴏʀᴛɢᴀɢᴇ ᴏɴ ᴡʜɪᴄʜ ʏᴏᴜ ʜᴀᴠᴇ ₄ ʏᴇᴀʀꜱ ʟᴇꜰᴛ ᴛᴏ ᴘᴀʏ,
ɪᴛ’ꜱ ɢᴏɪɴɢ ᴛᴏ ᴍᴀᴛᴛᴇʀ ᴍᴜᴄʜ ʟᴇꜱꜱ ᴛʜᴀɴ ɪᴛ ᴡᴏᴜʟᴅ ꜰᴏʀ ꜱᴏᴍᴇᴏɴᴇ ᴡʜᴏ ʜᴀꜱ
₂₀ ʏᴇᴀʀꜱ ᴏꜰ ᴍᴏʀᴛɢᴀɢᴇ ᴘᴀʏᴍᴇɴᴛꜱ ʟᴇꜰᴛ.
₃. ʏᴏᴜ ᴍɪɢʜᴛ ʙᴜʏ ᴀ ₁₀ ʏᴇᴀʀ, ₁₀,₀₀₀ ʙᴏɴᴅ ᴘᴀʏɪɴɢ ₅%
ɪɴᴛᴇʀᴇꜱᴛ. ᴛʜᴇ ɪꜱꜱᴜᴇʀ, ɪɴ ᴇxᴄʜᴀɴɢᴇ, ᴡɪʟʟ ᴘʀᴏᴍɪꜱᴇ ᴛᴏ ᴘᴀʏ ʏᴏᴜ ɪɴᴛᴇʀᴇꜱᴛ ᴏɴ
ᴛʜᴀᴛ ₇,₅₀₀ ᴇᴠᴇʀʏ ꜱɪx ᴍᴏɴᴛʜꜱ ᴀɴᴅ ᴛʜᴇɴ ʀᴇᴛᴜʀɴ ʏᴏᴜʀ ₁₀,₀₀₀ ᴀꜰᴛᴇʀ ₁₀
ʏᴇᴀʀꜱ.
₄. ʙʟᴜᴇ-ᴄʜɪᴘ ꜱᴛᴏᴄᴋꜱ ᴀʀᴇ ꜱᴛᴏᴄᴋꜱ ɪꜱꜱᴜᴇᴅ ʙʏ ʜɪɢʜ Qᴜᴀʟɪᴛʏ, ʟᴀʀɢᴇ
ᴄᴏᴍᴘᴀɴɪᴇꜱ ᴀɴᴅ ɢᴇɴᴇʀᴀʟʟʏ ʜᴀᴠᴇ ꜱᴛᴇᴀᴅʏ ᴅɪᴠɪᴅᴇɴᴅ.
₅. ɪᴛ ᴏꜰꜰᴇʀꜱ ᴀɴ ᴏᴡɴᴇʀꜱʜɪᴘ ꜱᴛᴀᴋᴇ ɪɴ ᴛʜᴇ ᴄᴏᴍᴘᴀɴʏ ᴀɴᴅ
ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ʀɪꜱᴋɪᴇʀ ᴀɴᴅ ᴍᴏʀᴇ ᴠᴏʟᴀᴛɪʟᴇ.

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