Question

5. In order to diversify your investing strategy, after graduation you decide to also invest annually in Tesla, Inc. You decide to invest $300 every January 1st for 5 years in Tesla and then when you are ready, you will sell this stock and buy your first home.

Date Amount Price

2015 300 240

2016 300 213

2017 300 316

2018 300 333

(1 point) If you sell all of your stock today and the share price is $286, how much money did you receive for the sale of that stock? (2 points) How much money do you Gain or Lose?

6. You decide you want to experiment a little with investing in bonds. Your grandma gives you $1,000 at graduation and you want to put it away in a safe place. You find a government bond to buy. a. (1 points) If the Annual Coupon Rate is 5%, what is your annual coupon payment? b. (3 points) If you assume that the annual discount rate is 4% compounded annually, how much is the bond worth today?

Answer 1

5: Here we will first compute the number of stocks bought over the period 2015 to 2018

No. of stocks purchased = 300/240 + 300/213 + 300/316 + 300/333 + 300/286

= 5.55767

(I have assumed that the last purchase i.e. purchase for the 5th year is done for $286 a share)

Total amount invested = 300*5 = $1,500. Amount received on sale = 5.55767 shares * $286 per share

= $1,589.49

Thus gain = amount received on sale - amount invested

= 1589.49 - 1500

= $89.49

6: (a) Annual coupon payment is 5% of $1,000 = $50

(b): The worth of the bond today depends on its face value, annual coupons and when it matures. Here face value is $1000 and annual coupon is $50 but maturity period is not given. The period can be 1 years or 2 years or so on. Assuming that the period is 1 year and hence after 1 year the amount of $1000 will be redeemed

Year	Cash flow	1+r	PVIF	PV = cash flow*PVIF
1	50.00	1.04	0.9615	48.08
1	1,000.00		0.9615	961.54
			Price	1,009.62

Thus assuming that the government bond matures after 1 year its worth today is $1,009.62