As pointed out at the beginning of this chapter, it doesn't make sense to establish an investment program until credit card and installment purchases are reduced or eliminated. While most people are responsible and make payments when they're supposed to, some people get in trouble. To help avoid this problem, each of the following organizations has a home page on the Internet: Consumer Credit Counseling Service provides information about how to manage consumer debt ( https://credit.org/cccs/ ). Green Path Debt Solutions provides counseling for people with debt problems. ( http://www.greenpath.com/ ). Choose one of the above organizations and visit its home page. Then prepare a report that summarizes the information provided by the organization. Finally, indicate if this information could help you manage your consumer debt .
The homepage of Green Path displays the journey to financial wellness, with emphasis being the ability to achieve financial freedom. The program, GreenPath Financial Wellness, acts as a nonprofit operating on a national scale. According to the organization, financial wellbeing is a path to obtaining individual dreams. GreenPath Financial Wellness outlines that the ability to achieve through robust financial health denotes having freedom and stability in financial objectives (GreenPath, 2019). Every individual should strive to ensure that they possess diverse options as well as the ability to work towards the set personal objectives. A personal dream can mean owning a bigger home, switching careers, or enrolling the kids in a better learning institution (GreenPath, 2019). Dreams differ for each person, but assuming control of the daily financial alternatives serves as the foundation for establishing myriad opportunities in the short- and long-term. The website contends that personal dreams can be obtained easily when an individual achieves financial stability.
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Various alternatives to the problem of consumer debt have been offered by GreenPath on its homepage. Some of the most critical areas requiring an individual to seek assistance include getting out of debt, making effective housing decisions, managing money, and partnering with GreenPath (GreenPath, 2019). From the options offered by the organization regarding the need to address consumer debt, I believe that the information offered is sufficient to help me manage my consumer debt. Getting out of credit card debt would mean my ability to understand the current financial goals and situation, determining the available consumer debt management solutions, seeking professional aid to get out of consumer debt, and creating a personalized action plan focused on achieving my goals.
From the investment alternatives described in this chapter, choose two specific investments you believe would help an individual who is 35 years old, is divorced, and earns $27,000 a year begin an investment program. Assume this person has $30,000 to invest at this time. As part of your recommendation, compare each of your investment suggestions on safety, risk, income, growth, and liquidity.
Based on the individuals, two investment options are recommended: (1) indexed funds and (2) balanced investment fund . Investing in an indexed fund is associated with benefits such as the ability to track the specific index and lower cost of management ( Smit & Trigeorgis, 2012) . Options from which the individual should choose for the index fund include international share index, domestic share index, property securities share index, and fixed interest share index. Index funds are also risk averse because the fund manager cannot attempt to obtain a return exceeding the market as exhibited by the associated index ( Smit & Trigeorgis, 2012) . Balanced funds, on the other hand, offer greater diversity in the available asset classes, including international shares, domestic shares, property shares, and fixed interest shares ( Smit & Trigeorgis, 2012) . It also provides diversification throughout the investment industry. The merits of a balanced investment fund comprise lower risk levels because of the diversity of asset classes. Furthermore, its recommended period is approximately five years instead of the seven years for the share portfolio option.
Assume you are single and have graduated from college. Your monthly take-home pay is $2,500, and your monthly expenses total $2,300, leaving you with a monthly surplus of $200. Develop a personal plan of action for investing using the steps listed in Exhibit 13-5 of your text. Assume you have established an emergency fund and have saved an additional $12,000 to fund an investment in common stock issued by AT&T Corporation. Using the sources of information discussed in this chapter, go to the library or use the Internet to obtain information about this company. Summarize your findings describing AT&T's current operations and the firm's past and present financial performance. Finally, indicate whether you would purchase AT&T common stock based on the information in your report.
AT&T has reported strong financial performance in total revenue, gross profit, operating income, and net income. The company reported net income of $19,370,000 by the beginning of the financial year 2019 (Nasdaq, 2019). The reported net income is applicable to the common shareholders. Although the figure is below the reported income applicable to common stockholders in the financial year ending 2017, a higher net income is projected by the end of Q3, 2019. The massive decrease by about $10,000,000 was realized because the increase in operating expenses in 2018. The financial reports indicate a significant increase in shareholders’ equity by the end of financial year 2018 ($7,621,000) compared with $6,495,000 in fiscal year 2017 (Nasdaq, 2019). Based on the progressive and robust performance of the company, I would buy AT&T common stock.
Prepare a two-minute oral presentation that describes why corporations sell bonds. Record the presentation and submit the video to your instructor.
Issuing bonds acts as one of the avenues through which a company’s financial needs are addressed. Bonds operate as a loan upon which a corporation and an investor agree (Faerber, 2001). An entity seeking investment agrees to offer the corporation a particular amount of cash for a given period in exchange for interest payments delivered in intervals over a specific duration. The choice to issue bonds by corporations rather than selecting other alternatives of raising funds is controlled by numerous factors. Firstly, issuing bonds gives corporations a means of meeting capital requirements without reducing the current equity of shareholders. Secondly, bonds allow corporations to borrow money at a lower rate of interest than the actual rate given by the banks. When corporations issue bonds directly to the prospective shareholders, they eliminate the middlemen in transactions involving banks. Bonds ensure that the borrowing process is less expensive and more efficient when intermediaries are not involved.
Thirdly, bonds enable corporations to borrow capital at a fixed rate for extended durations compared to the rates offered by banks. Often, several banks decline to give fixed loan rates for periods exceeding five years because of their fear of losing funds if the cost of funds increases to higher rates than the long offered in the long-term (Faerber, 2001). Multiple corporations need to borrow capital for long-term; thus, the desire to opt for issuing bonds. Fourthly, the bond sector provides an efficient way to get capital. When corporations issue bonds, they are spared the requirement to attend separate and tedious transactions and negotiations to get the capital it requires. Issuing bonds also provides a way to enable investors to get involved in the loan activities through the comprehensive or master loan deal.
Using the Internet. Use the information at the bond site on Yahoo! Finance lo answer the following questions about a corporate bond. To complete this activity, follow these steps. Go to http://finance.yahoo.com/bonds and click on Bond Screener. Click on Corporate and enter the information requested in the section "Select Bond Criteria". Then click Find Bonds. Choose one of the issues listed. Using the information on the Yahoo! bond website, determine the current yield for this bond issue. What does the current yield calculation measure? Using the information on the Yahoo! bond website, what is the yield to maturity for this bond issue? What does the yield to maturity calculation measure? What is the rating for this bond? What does this rating mean? Based on your answer to the above questions, would you choose this bond for your investment portfolio? Explain your answer.
The current yield for the 13 Week Treasury Bill (IRX) is 1.933 (Yahoo Finance, 2019). A bond’s current yield is computed by dividing the interest earned annually by the current bond price. Calculation of the current yield seeks to ascertain the expected annual rate of return ( Becker & Ivashina, 2015) . Current yield serves as function of the bond’s current price and the interest amount paid by the bond. Bonds issued by corporation and the government are sold and bought on the bond market, indicating constant changes in price. It is critical for investors to acknowledge the connection between yield and price, along with the process of determining the current yield.
Understanding the relationship between bond price and the current yield is important to investors and corporation. Often, the yield and price of a bond differ inversely; that is, when the bond price decreases, the yield increases ( Becker & Ivashina, 2015) . Conversely, when the price increases, the bond’s current yield falls. The information gathered from the bonds’ page on Yahoo Finance demonstrates that the current yield – 1.933 – is the yield that investors would receive if they purchase the US Treasury Bill issue at the current market price. Investor returns is obtained by understanding the actual bond price according to the market and the expected current yield. Although regarded as a simple component in the financial market, the current yield is a principle measure in investment financing because it describes the investment’s rate of return for as long as the investor owns the bond.
References
Becker, B., & Ivashina, V. (2015). Reaching for yield in the bond market. The Journal of Finance , 70 (5), 1863-1902.
Faerber, E. (2001). Fundamentals of the bond market. McGraw-Hill .
GreenPath. (2019). Financial wellness is a journey. Retrieved from https://www.greenpath.com/
Nasdaq. (2019, September 01). T company financials. Retrieved from https://www.nasdaq.com/symbol/t/financials?query=balance-sheet
Smit, H. T., & Trigeorgis, L. (2012). Strategic investment: Real options and games . Princeton University Press.
Yahoo Finance. (2019, September 01). U.S. Treasury Bonds Rates. Retrieved from https://finance.yahoo.com/bonds/
