Complete problems #3, #5, #11, and #17 at the end of chapter 11

3. Grandpa Russ thinks he needs a fixed income for the next 10 years. He

currently has $10,000 in CDs, which are maturing at the end of this month. The CDs can be

renewed for one year at 4.5 percent. Russ calls his broker, Ben Seller, and learns that his

$10,000 can be put to better use by purchasing debentures issued by Grab-n-Run, Inc. These

bonds are 10-year bonds with a coupon rate of 8 percent, which is paid semiannually. The

current market interest rate is 6 percent for bonds of a similar nature. The broker tells Grandpa

Russ that he may buy each bond for $1,400. Grandpa knows that he must pay a premium, but

he believes that a $400 premium is too high.

a. What is the maximum price you should tell Grandpa to pay for each bond?

b. Compare the risk of the CD with the risk of the bond

c. What else would you advise Grandpa with regard to this type of investment?

5. Sarah Mix decides to invest $500 per month in three funds, with $200 going into a small

capital growth fund, $150 going into a large capital growth fund, and $150 into an international

fund. She tracked the price she paid for stock in these funds over a 6-month period, as shown in

Table 11-3.

a. What was the average price paid per share in each mutual fund?

b. How much has Sarah invested in mutual funds?

c. What is the current value of her investment?

d. Which fund is currently performing best for Sarah?

11. A corporation has total assets of $85 million and total liabilities of

$5 million. If the corporation has 4 million shares of common stock outstanding, what is the book value per share of common stock?

17. You deposit the following at the end of each year into a growth mutual fund that earns 11 percent per year:

Year Deposit ($)

1 4,000

2 3,500

3 2.500

4 2,000

5 1.700

$13,700

a. How much should the fund be worth at the end of 5 years?

b. How much interest have you earned in total?