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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.

 

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.

How long will it take the fund she invested in to be worth $10,000? 

 May 31, 2019
edited by Guest  May 31, 2019
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This is very simple problem:

 

1 - Multiply 1000 shares by the purchase price + $14 commission.

2 - Bond price is the face value of $2,500.

3 - $5,000 fund has the same face value at purchase or $5,000

4- Add up 1 to 3 and that is the value of her acct. at the beginning of the year.

 

AT THE END OF THE YEAR:

1 - Multiply 1000 shares by the sale price - $14 commission

2 - Multiply $2,500 bond x 7/100 or 0.07 to get the interest for 1 year + $2,500 principal

3 - Do the same with $5000 fund at 3.5% + $5,000 principal.

4 - Add up 1 to 3 and that is the value of the account at the YEAR END.

5 - Subtract the total at the beginning of the year from the total at the end of year and that is her GAIN or LOSS.

 

Doubling of her fund from $5000 to $10,000 would take:

10,000 = 5,000 x 1.035^n

Divide both sides by 5,000

2 = 1.035^n

n = log(2) / log(1.035) =20.15 years to double her money @ 3.5%.

 May 31, 2019

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