T20-1 REVIEW EXERCISES CHAPTER 20 SECTION I. Calculate the preferred and common dividend per share for the following companies: $.

Transcription

1 T20- REVIEW EXERCISES CHAPTER 20 SECTION I Calculate the preferred and common dividend per share for the following companies: Common Stock Preferred Stock Dividend Preferred Common Company Shares Shares Div. or Par Cum. Declared Arrears Div./Share Div./Share. Intel 5,000,000 none $ 3,000,000 none 2. Alcoa 0,000,000 3,000,000 $5.50 no 25,000,000 none 3. Pepsi 8,000,000 2,000,000 $00 6% no 0,000,000 none 4. Wrigley 4,000,000,000,000 $00 4% yes 4,000,000 year $8.00 $ IBM 20,000,000 4,000,000 $6.25 yes none year 0 0 $5.50 $5.00 $.60 $ Common dividend per share 5 $3,000,000 5,000, $.60 per share 2. Total preferred dividend 5 3,000,000 3 $ $6,500,000 Total common dividend 5 $25,000,000 2 $6,500,000 5 $8,500,000 Common dividend per share 5 $8,500,000 0,000, $.85 per share

2 T20-2 REVIEW EXERCISES CHAPTER 20 SECTION I Answer Exercises 6 0 based on the stock quotation table to the right: 6. Men s Wearhouse High and low for the past 52 weeks: $3.25, $ McDonalds Ticker symbol, PE ratio, and last price: MCD, 20, $ Mattel Dividend, volume, net change: 9. McKesson Percent yield, volume, last price: $.40, 2,884,600 shares, down $.9.8%, 7,752,000 shares, $ Maytag Dividend, percent yield, 52-week low: $.72, 3%, $22.73

3 T20-3 REVIEW EXERCISES CHAPTER 20 SECTION I Calculate the missing information for the following stocks: Earnings Annual Current Price Current Price-Earnings Company per Share Dividend per Share Yield Ratio. Sears $6.59 $.60 $ % 7 2. Wendy s % Rubbermaid % 2 4. Ford % 3 5. Disney % 30. Current yield Price earnings ratio 5 Annual dividend 5 Current price % 46.3 Current price per share Earnings per share Earnings per share 5 Current price PE ratio $.3 4. Current price 5 Dividend Yield 5 $ % 5 $64 5. Dividend 5 Price 3 Yield % 5 $.30

4 T20-4 REVIEW EXERCISES CHAPTER 20 SECTION I Calculate the total cost, proceeds, and gain (or loss) for the following stock market transactions: Number Purchase Selling Commissions Total Gain Company of Shares Price Price Buy Sell Odd Lot Cost Proceeds (or Loss) 6. DuPont 00 $47.20 $ % 3% 7. Wal-Mart add % 8. Heinz Goodyear add % $ 4, , , ,723.4 $ 5, , , ,30.56 $ , , (3,42.85) 20. AmExpress , ,997.0, Cost of shares $4, Commission % Total cost 5 $4,86.60 Value of shares $5, Commission % Proceeds 5 $5, Gain (loss) 5 5, , $ Cost of shares $6, Commission % % Total cost 5 $6,585.5 Value of shares $0,26.50 Commission % % 5 Proceeds $9, Gain (loss) 5 9, , $3,42.42

5 T20-5 REVIEW EXERCISES CHAPTER 20 SECTION I Cost of shares $25, Commission % Total cost 5 $26, Value of shares $32, Commission % Proceeds 5 $3, Gain (loss) 5 3, , $5, Cost of shares $29, Commission % % Total cost 5 $29,723.4 Value of shares $26, Commission % % Proceeds 5 $26,30.50 Gain (loss) 5 $26, , ($3,42.85) Cost of shares $2, Commission % Total cost 5 $2,93.65 Value of shares $4, Commission % Proceeds 5 $3,997.0 Gain (loss) 5 3, , $,065.45

6 T20-6 REVIEW EXERCISES CHAPTER 20 SECTION I 2. The Maxtor Corporation has 500,000 shares of common stock outstanding. If a dividend of $425,000 was declared by the company directors last year, what is the dividend per share of common stock? Dividend per share 5 Total common dividend Number of shares 5 $425, ,000 5 $.85 per share 22. The board of directors of Saratoga, Inc., has declared a dividend of $3,000,000. The company has 700,000 shares of preferred stock that pay $.90 per share and,600,000 shares of common stock. a. What are the dividends due the preferred shareholders? Total preferred dividend 5 Number of shares 3 Dividend per share 5 700, $630,000 b. What is the dividend per share of common stock? Total common dividend 5 $3,000,000 2 $630,000 5 Dividend per common share 5 $2,370,000,600,000 5 $.48 $2,370, Keller Corporation has,800,000 shares of $00 par value, 5%, cumulative preferred stock and 9,750,000 shares of common stock. Although no dividend was declared for the past 2 years, a $44,000,000 dividend has been declared for this year. a. How much is due the preferred shareholders? Dividend per share preferred 5 $00 3 5% 5 $5.00 Total dividend due preferred stockholders 5,800,000 3 $ years 5 $27,000,000 b. What is the dividend per share of common stock? Dividend per share common stock $44,000,000 2 $27,000,000 5 $7,000,000 7,000,000 5 $.74 per share 9,750,000

7 T20-7 REVIEW EXERCISES CHAPTER 20 SECTION I 24. Alpha Airlines is currently selling at $ The earnings per share is $3.4, and the dividend is $.70. a. What is the current yield of the stock? Current yield 5 Annual dividend Current price 5 $.70 $ % b. What is the price-earnings ratio? Current price per share Price-earnings ratio 5 Earnings per share Price-earnings ratio 5 $47.35 $ You purchase 650 shares of Prism Corporation common stock at $44.25 per share. A few months later, you sell the shares at $ Your stockbroker charges 3% commission on round lots and an extra % on odd lots. a. What is the total cost of the purchase? Cost of shares $ $28, Commission $ % $ % Total cost 5 $29, b. What are the proceeds on the sale? Value of shares $ $37, Commission $ % 52, $ % Proceeds 5 $36, c. What is the gain or loss on the transaction? Gain 5 $36, $29, $6,

8 T20-8 BUSINESS DECISION CHAPTER 20 SECTION I DOLLAR-COST AVERAGING 26. Though investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $,200 investment in Polynomial Corporation stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $00 per month for one year. a. If you invested all of the money in January, and bought the shares for $0.00 each, how many shares could you buy? Shares purchased 5, b. From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Amount Cost per Shares Amount Cost per Shares Month Invested Share Purchased Month Invested Share Purchased January $00 $ July $00 $.50 February August March September April October May November June December Total shares c. What is the average price you pay per share if you purchase them all in January? Average price 5, $0.00 d. What is the average price you pay per share if you purchase them using dollarcost averaging? Average price 5, $9.7

9 T20-9 REVIEW EXERCISES CHAPTER 20 SECTION II Answer Exercises 0 based on the following bond quotation table:. Hlthso Coupon rate and current yield: 2 2. IBM 6 28 Closing price and net change: 3. AnnTaylr Maturity year and volume: 4. Argosy Volume and closing price: 5. AMR Coupon rate, maturity year, and net change: 6. JCPL Current yield and closing price: 7. Which bonds are selling for exactly par value? 8. Which bond has the highest current yield? 9. Which bond had the greatest net change? How much? 0. Which bond had the highest price? How much? 2 9%,9.3% 06, , 5 Bonds 3 00 Bonds, 2 9%, 206, 7.2%, KaufB 7 04 KCS En, 20.9% IntgHlth, 26 HomeDpt, 236 2

10 T20-0 REVIEW EXERCISES CHAPTER 20 SECTION II Calculate the accrued interest and the total purchase price of the following bond purchases: Time Commission Coupon Market Since Last Accrued per Bonds Total Company Rate Price Interest Interest Bond Purchased Price. Xerox months $9.7 $5.00 $ U.S. West days , AT&T months , Hilton days , Ford months , Accrued interest 5,000 3 Coupon rate 3 Time I 5, $9.7 Total price 5 (Current market price Accrued interest Commission) 3 Number of bonds 5 ( ) 3 5 $876.67

11 T20- REVIEW EXERCISES CHAPTER 20 SECTION II Calculate the accrued interest and the total proceeds of the following bond sales: Time Commission Coupon Market Since Last Accrued per Bonds Total Company Rate Price Interest Interest Bond Purchased Price 6. Textron days $3.65 $ $9, Apple months , USX days , Mobil month , Nabisco days , I 5 PRT Proceeds 5 Current market price Accrued interest 2 Commission I 5, $3.65 Proceeds 5 ( ) $9,26.50

12 T20-2 REVIEW EXERCISES CHAPTER 20 SECTION II Calculate the annual interest and current yield for the following bonds: Coupon Annual Market Current Company Rate Interest Price Yield 5 2. Kroger 6 $ Bordens Blockbuster McDonald s Pacific Telesis Annual interest 5 Par value 3 Coupon rate Kroger, annual interest 5, $ % Current yield 5 Annual interest Current market price Ca Current yield 5 $66.25 $ %

13 T20-3 REVIEW EXERCISES CHAPTER 20 SECTION II 26. On March, Kelly Keeler bought 0 Slick Oil Company bonds with a coupon rate 7 of 9 8. The purchase price was 88 8, and the commission was $6.00 per bond. Slick Oil bonds pay interest on February and August. a. What is the current yield of the bond? Annual interest 5 Par value 3 Coupon rate Annual interest 5, $9.25 Annual interest Current yield 5 Market price Current yield 5 $9.25 $ % b. What is the total purchase price of the bonds? Total purchase price 5 (Current market price Accrued interest Commission) 3 Number of bonds Accrued interest 5, $7.60 Total purchase price 5 ( ) $9, c. If Kelly sold the bonds on November for 938, what are the proceeds from the sale? Proceeds of sale 5 Current market price Accrued interest 2 Commission 3 Number of bonds Accrued interest 5, $22.8 Proceeds 5 ( ) $9,555.60

14 T20-4 BUSINESS DECISION CHAPTER 20 SECTION II TAXABLE OR TAX-FREE BONDS 27. More than 50,000 state and local governments and their agencies borrow money by issuing municipal bonds to build, repair, or improve schools, streets, highways, hospitals, sewer systems, and so on. When the federal income tax law was adopted in 93, interest on municipal bonds was excluded from federal taxation. As a result, municipal bond investors are willing to accept lower yields than those they can obtain from taxable bonds. As part of your portfolio, you are considering investing $50,000 in bonds. You have the choice of investing in tax-exempt municipal bonds yielding 5.5% or corporate bonds yielding 7.5% in taxable interest income. a. What is the annual interest income and tax status of the municipal bond investment? Annual income 5 50, $2,750, tax free b. What is the annual interest income and tax status of the corporate bond investment? Annual income 5 50, $3,750, taxable c. If you are in the 30% marginal tax bracket for federal income taxes and your state and local taxes on that income amount to an additional 6%, what is the after-tax income on the corporate bonds? After-tax income 5 3, $2,400 d. What is the actual percent yield realized on the corporate bonds after taxes? Yield 5 2,400 50, %

15 T20-5 REVIEW EXERCISES CHAPTER 20 SECTION III Answer Exercises 2 based on the following mutual fund quotation table:

16 T20-6 REVIEW EXERCISES CHAPTER 20 SECTION III. Smith Barney A: MuCalA Offer price and 39-week return: $2.74, 2.2% 5. Which Rightime Group fund is a bond fund? What is its ranking? GVSc, E 2. Retirement Investment Trust: Balanced Objective and net asset value: Stocks and Bonds $ Which Smith Barney A funds have the best and worst 39-week returns? Best: Intl A 25.%, Worst: Utlty A 24.4% 3. Rightime Group: BlueC NAV change and 5-year return: 20.03, 0.2% 7. What does NL mean in the offer price of some funds? No Load, no commission 4. Which Rembrandt fund has the only positive return in the yearto-date? IntlEqTr. 0.2% 8. Which Rembrandt fund has the best 39-week return? IntlEqTr. 5.4%

17 T20-7 REVIEW EXERCISES CHAPTER 20 SECTION III Offer Net Asset Sales Sales Fund Price Value Charge Charge % 9. Smith Barney A: MuFl A 0. Retire Invst Trust: Income. Rightime Group: Grth 2. Smith Barney A: USGvtA $ $ $ Mutual fund sales charge 5 Offer price 2 Net asset value Sales charge $.53 Sales charge % 5 Sales charge 4 Net asset value Sales charge % %

18 T20-8 REVIEW EXERCISES CHAPTER 20 SECTION III Calculate the net asset value and number of shares purchased for the following funds (round shares to thousandths, three decimal places): Total Total Shares Net Asset Offer Total Shares Assets Liabilities Outstanding Value Price Investment Purchased 3. $80,000,000 $2,300,000 5,000,000 $5.54 $6.0 $0, ,000,000,800,000 6,00, , ,400,000 4,650,000 8,500, , , ,000, ,000,300, NL 25,000 2, Net asset value Total assets Total liabilities Number of shares outstanding $80,000,000 $2,300,000 5,000,000 $5.54 Shares purchased Total investment Offer price $0,000 $ Shares

19 T20-9 REVIEW EXERCISES CHAPTER 20 SECTION III Calculate the total cost, proceeds, total gain or loss, and return on investment for the following mutual fund investments. The offer price is the purchase price of the shares, and the net asset value is the price at which the shares were later sold: Return on Offer Total Net Asset Per Share Total Gain Investment Shares Price Cost Value Proceeds Dividends (or Loss) (%) $5.30 $, $8.80 $, $.45 $ , , , , , , , , , (,540.00) Gain (or loss) on investment 5 Proceeds 2 Total cost Total gain (or loss) 5 Gain (or loss) Dividends Return on investment Total cost 00 $5.30 $, Proceeds 00 $8.80 $,880.00, , ( ) Total gain $ Total gain Total cost of purchase Return on investment , %

20 T20-20 REVIEW EXERCISES CHAPTER 20 SECTION III 2. A mutual fund has an offer price of $3.0 and a net asset value of $2.35. a. What is the sales charge? Sales charge $.75 b. What is the sales charge percent? Sales percent % 22. A mutual fund has total assets of $25,000,000 and liabilities of $3,500,000. If there are 8,600,000 shares outstanding, what is the net asset value of the fund? Net asset value 5 25,000, ,500,000 8,600, William Stokes invested a lump sum of $0,000 in a mutual fund with an offer price of $4.50. How many shares did he purchase? Shares purchased 5 $0,000 $ $ Charlie Beavin purchased 500 shares of Advantage Resource Fund for an offer price of $8.90 per share. He later sold the shares at a net asset value of $0.50 per share. During the time that he owned the shares the fund paid a dividend of $.75 per share three times. What is Charlie s return on investment? Cost $ $4, Proceeds $ $5, Dividends 5 ( ) $, , ,450.00,25.00 Return on investment % 4,450.00

21 T20-2 BUSINESS DECISION CHAPTER 20 SECTION III CAPITAL GAINS 25. There are many tax rules and regulations that you should be aware of when investing; whether it be in stocks, bonds, mutual funds, real estate, or collectibles. Capital gains are proceeds derived from your investments. Unless they are specified as being tax-free, such as municipal bonds, you must pay capital gains taxes on these funds. Capital gains are taxed in one of two ways. If the investment was held for one year or less, this is considered short-term and is taxed as ordinary income at your regular income tax rate. If the investment was held for more than one year, it is considered long-term, and qualifies for various tax discounts, as follows: Capital Gains Rates Stocks Held 0% or 5% tax bracket Over 5% bracket year or less 0% or 5% 25% 35% Over year 5% 5% a. If you are in the 5% tax bracket, how much tax would be saved by waiting for an investment to become long-term before selling, if your taxable profit from this investment was $25,000? Long-term tax savings 5 5% 2 5% 5 0% 25, $2,500 b. How much would you save if you were in the 35% tax bracket? Long-term tax savings 5 35% 2 5% 5 20% 25, % 5 $5,000