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INVESTIGATION Avoiding the monthly service fee

In document NELSON SENIOR MATHS ESSENTIALS 12 (Page 135-138)

Cath has a bank transaction account. The bank doesn't pay any interest on the account and if the balance in the account is less than $2000, Cath is charged a $5 monthly service fee. Cath is wondering if she would be better off using her spare cash to keep the balance over $2000 to avoid the fee, or putting the cash into an interest paying account.

What you have to do

Calculate the interest Cath would earn for one month on $2000 at annual interest rates of 1 %, 2%, 3%, 4%, 5% and 6%.

2 At what rates of interest do you advise Cath to put her spare cash in her transaction account to avoid the monthly $5 fee?

&l]I INVESTING IN SHARES

Investing money in banks and credit unions is a relatively safe form of investment and we know the return in advance. Shares are another form of investment but they involve higher risk and uncertain returns. The return from shares can be much greater than those from other types of investments, but there is a risk of losing your money if the share price falls.

People invest in shares for two reasons.

• They hope the market value of the shares will increase, enabling them to be sold for a profit.

• They want to 'share' the company's profits.

The market value of a share is the current price of the share on the stock market. Share market values change frequently. The market price of some shares can change numerous times in one day.

Every year companies pay their shareholders a dividend. The dividend is the shareholder's 'share' of the company profits. The dividend yield is one way to compare the performance of different shares. The dividend yield is the dividend expressed as a percentage of the share's current market value.

0 Example 7

In April, VAD Holdings paid a dividend of 23 cents per share. a Deanne owns 1500 shares. Calculate her April dividend.

b In April, the share's market value was $1.80. Calculate the dividend yield correct to 1 decimal place.

Solution

a Deanne will receive 23 cents or $0.23, for every share she owns. We need to multiply the number of shares by $0.23.

b The dividend yield is $0.23 compared to $1.80 expressed as a percentage.

124 I NELSON SENIOR MATHS Essentials 12

Deanne's dividend= $0.23 x 1500 = $345 Deanne's dividend is $345. · ·d d · ld 0·23 D1v1 en y1e = --1.80 x 100 = 12.8% correct to 1 decimal place 9780170264112

0 Example 8

Liam bought 2000 ABZ shares at $3.20 per share. At the end of the year, the shares were worth $3.70 each and the company paid a dividend yield of 14%. Calculate Liam's total dividend.

Solution

The dividend yield is paid on the market value of the shares.

Liam's total dividend will be the number of shares he owns multiplied by the dividend per share.

Dividend for 1 share = 14% of the market value 14

=-X$3.70

100

= $0.518

The dividend for each share is $0.518. Don't round the dividend at this stage because rounding here will make the final dividend amount wrong.

Liam's total dividend= 2000 x $0.518 = $1036

Liam's total dividend is $1036.

EXERCISE 5.05

Investing in_ shares

•£ij,j,,j.jiid

Shambles Chocolates paid a dividend of 17 cents per share. Keith had purchased

5000 shares at a market value of $1.20 each. a Calculate the total dividend Keith received.

b Calculate the dividend yield of the shares correct to one decimal place.

2 -§,j,ij,j4 Lord Granville shares paid a dividend yield of 5%. Alexander had 700 shares with a market value of $9.50 each.

a Calculate the dividend paid per share.

b Calculate the total dividend Alexander received.

3 Gilberto keeps a record of his income from his shares portfolio. The table shows Gilberto's May dividend statement. Complete the missing values in the table.

Market value Number of Dividend Total dividend Dividend yield

(per share) shares per share received as a%to2

decimal places

Caron Union $1.75 3000 4 cents a d

Retreats Co. $5.10 1200 12 cents b e

DAC Growth Ltd · $1.12 5690 3.4 cents C f

4 Jenny paid $6.50 each for 1800 Sutherland United one-dollar shares.

a What is the face value of Jenny's shares? ---'One-dollar' shares indicate the original price, or b Calculate the market value ofJenny's shares. face value, of the share. It has nothing to do with

MoneySmort

5 Joan bought 630 Kelmark shares at $11.74 each. a How much did Joan pay altogether for the shares?

b In August the market value of the shares was $12.30 and Kelmark paid a dividend of 29 cents a share. Calculate Joan's total dividend.

c Calculate the dividend yield.

d Joan sold the shares in November for $11.65 a share. Did she make an overall profit or loss through buying and selling the shares? Ignore any costs involved in buying and selling the shares.

6 Yvonne invested $2040 in 'Combined Energy' 50c shares that were selling for 85 cents each.

How many shares did she buy?

7 Shares can be traded over the Internet or through a stockbroker, but the stockbroker earns a commission called brokerage. The table shows Taylor's Brokerage charges.

Taylor's Brokerage charges 1.5% on the first $2000 1.0% on the next $15 000 0.5% on the remainder

a Mandy bought 2000 shares at $1.15 per share through Taylor's Brokerage. How much did the brokerage cost?

b Mandy had to pay State Government Stamp Duty at 15c per $100 of the cost of the shares she bought. How much stamp duty did she have to pay?

8 Lachlan owns 1350 one-dollar shares in PKT Holdings. The shares are valued at $2.80 each. The company paid a dividend of 14 cents per share. Calculate the dividend yield.

9 Sally bought 1000 shares in BPH valued at $3.98 per share. Her brokerage costs were 1 % of the purchase price. During the year, the company paid a dividend yield of 5.5%. After she received the dividend, Sally sold the shares for $4.80 each. Calculate Sally's total earnings from the shares for the year, after costs.

INVESTIGATION

Investment scams

Even the most experienced and careful investors can be targeted by scam operators. In this investigation, you are going to learn about boiler room scams and how to avoid them.

What you have to do

Visit the MoneySmart website and the Investment scams section.

2 Scroll down to the bottom of the page <1nd watch the video Avoiding share fraud scams.

3 Why are these scams called 'Boiler room scams'?

4 Who are the victims of boiler room scams?

5 What are two features of a phone call that indicate that the investment opportunity is a scam? 6 If you are a victim of a boiler room scam, are you likely to be targeted again for another scam? 7 List four questions the Australian Investment and'Securities Commission recommend that

you ask anyone who is trying to sell you an investment.

8 What is the 'do not call register' and how can being on it help you?

In document NELSON SENIOR MATHS ESSENTIALS 12 (Page 135-138)