Bus 2204 Written assignment Unit 7

Written Assignment

University of the people

Kerri Schaffer, instructor

October 16, 2022

 Bus 2204 Written assignment Unit 7

What are bonds?

Bonds are investment securities where an investor lends money to a company or a government

for a set period of time, in exchange for regular interest payments. That is providing a loan to the

bond issuer, who has agreed to pay you interest and return the money you have given them as a

loan on a specific date in the future once the bond has reached maturity (Napoletano, &

Benjamin,2021). The text states that, Bonds are distinguished as corporate or government and as

short-term, intermediate-term, or long-term, depending on the maturity date (Siegel, & Yacht,

2009).

What are their features and how are they traded?

Bonds have:

 Issued price, which is the price paid to buy the bond when it was first issued.

 Bonds are redeemable way even before the maturity date.

 Bonds have maturity dates, which is when the bond has reached the maturity stage where

the principal amount is paid to the bondholder.

 Bonda also have redemption value, that is the value paid to the bondholder, at the time of

expiry of the term for which bond is issued (Business Jargons, n.d)

When buyers and sellers are trading their bonds, they dictate the yields of the various types of

bonds they are trading. Trading is usually done through bond dealers, who provide liquidity for
 Bus 2204 Written assignment Unit 7

bond investors, so that those investors can buy and sell bonds more easily. Trading bonds can

also involve financial institutions pension fund, mutual funds and governments from round the

world (Financial Pipeline, 2014). The bond markets is far bigger than the stock market and

central banks conduct monetary policies in the bond market. They can be bought and sold in

secondary markets, and its price is highly dependent on interest rates, which means investors can

earn a profit of the asset appreciates in value. Buying government bonds simply mean your are

loaning your capital to whichever government issued the bond, and when buying corporate bonds

mean your are loaning your capital to a company (Montana, 2022). U.S Treasury bonds are

actioned regularly to banks and large institutional investors by the Treasury Department, but

individuals can also buy U.S bonds directly from the U.S government (Siegel, & Yacht, 2009).

What are stocks?

Stocks or equity securities are shares of ownership (Siegel, & Yacht, 2009). Stocks are units of

ownership in a company, known as shares of stock or equities, which actually means you are

purchasing a partial ownership in the company, entitling you to certain benefits (Napoletano, &

Benjamin, 2021).

What are thee features of stock and how are they traded?

Stock has: Stock rights offered to investors:

Dividend right, which entitles the shareholder to earn dividends from the stock.

Asset rights- Entitles shareholder to receive remaining assets in the event of a liquidation.
 Bus 2204 Written assignment Unit 7

Stocks provide voting rights, which allows investors to elect the board of directors (Groww,

n.d).

Stocks are traded on the stock exchanges where corporations are publicly traded like the New

York Stock Exchange, and the NASDAQ a computerized trading system managed by the

National Association of Securities Dealers. The text states, that only members of an exchange

may trade on the exchange, which means to be able buy or sell stock one needs to go through a

broker who is a member of the exchange (Siegel, & Yacht, 2009).

How do you calculate an annual rate of return?

According to the text, returns are always calculated as annual rates of returns, or the percentage

of return created for each unit (dollar) of original value. To calculate the annual rate of return for

an investment, one should know the income created the gain and loss in value, and the original

value of the beginning of the year (Siegel, & Yacht, 2009).

Annual rate calculation formula:

1. [ Income + Gain] / Original value= percentage rate of return

Or

2. [Income + (Ending Value- Original value)] / Original value = Percentage rate of return.

NB: When the ending value is greater than the original value, the Ending value – Original value=

gains added to your returns. If the Ending value is less, then Ending value- Original value<0 = a

loss that is detracted from the returns. When there are no gains or losses, the Ending value -
 Bus 2204 Written assignment Unit 7

Original Value = 0, your returns will be the income that the investment created (Siegel, & Yacht,

2009)

You buy a share of stock for $100, and it pays no dividend. A year later the market price is

$105. What is the rate of return?

The rate of return = [ 0+(105-100)] / 100= 5 / 100 = 5%

You buy a share of stock for $100 and a year later the market price is $105, and it pays a

dividend of $2. What is the return?

The rate of return = [ 2 + (105-100)] /100 = 7 /100 = 7%

Investment professionals are more concerned with the expected returns for the investment.

Estimating expected returns is complicated due to factors like current economic conditions,

industry, and market conditions that can affect that estimate (Siegel, & Yacht, 2009).

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Reference

Business Jargons, (n.d). Bonds. Retrieved from https://businessjargons.com/bonds.html

Financial Pipeline, (2014). How are Bonds Traded? Retrieved from

https://www.financialpipline.com/trading-bonds/

Groww. (n.d). Common Stocks. Retrieved from https://groww.in/common-stocks

 Bus 2204 Written assignment Unit 7

Montana, R. (2022). How to trade Bonds 2022. Retrieved from https://tradingbrokers.com/how-

to-trade-bonds/

Napoletano, E. Benjamin, C. (2021). Fixed Income Basics: What Is A Bond? Retrieved from

https://www.forbes.com/advisors/investing/what-is-a-bond/

Napoletano, E. Benjamin, C. (2021). Investing Basics: What are stocks? Retrieved from

https://www.forbes.com/advisors/investing/what-are-stocks/

Siegel, R. & Yacht, C. (2009). Personal Finance. Saylor Foundation. Licensed under Creative

Commons CC BY-NC-SA 3.0.