As well, class, many of you have made the point correctly that bonds can offer a

Question

As well, class, many of you have made the point correctly that bonds can offer a way to balance a portfolio against stocks. This is because bonds' values tend to move inversely to stocks. Why that is we can get to in a bit. To help us get there let's discuss 'approximate value'. What do we mean when we talk about a bond's approximate value? Let's calculate the "approximate value" of a bond. If we have a $1000.00 bond that is paying us 10%, and the market shifts to offer $1000.00 bonds that pay only 8%, how much can we sell our bond for (what is our bond's approximate value)? The real value in the beta discussion is to get us thinking about beta's use as a risk-reduction tool in a portfolio; the beta measure can be used to help us diversify. Let's shift gears and talk a bit about how we determine a profit or loss from an investment. For example, let's say we purchased 150 shares of Microsoft stock for $18 a share two years ago. Today, we sold our Microsoft stock for $26 a share (please ignore commission fees). What is our per share profit, as well as our total profit for this equity transaction?

Explanation / Answer

http://www.theoptionsguide.com/call-option.aspx

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