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?
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%.
