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CH 18] Calculating Business 18-1

CHAPTER 18

NOTE TO INSTRUCTOR: Solutions
to Homework are in that section.
Avg. time for Students to read &

complete homework: 4.5 hrs.

Securities: Stocks & Bonds

Objectives

After mastering the material in this chapter, you will be able to:

 Calculate the total investment when buying stocks and bonds.
 Determine the net proceeds from the sale of stocks and bonds.
 Calculate the amount of gain or loss on the sale of stocks and bonds.
 Determine the Return on Investment and the rate of gain or loss on an investment
in stocks or bonds.

Owners and managers need to be financially astute with all forms of investment. People
who are diligent at setting aside 10 percent or more (tithe) each time they are paid eventually
have sums of money accumulating in an account for wise investments. Disciplined savings are
a useful tool to invest in securities and/or to purchase a first home for their family; a
transference from paying rent to ownership. Sometimes additional savings are to purchase a
new vehicle or a desired vacation. Which of these purchases will generally increase in value
that the owner will enjoy and benefit financially?
Two answers: the real estate purchase and the securities. Since Columbus landed in the
new world, the value and cost of real estate has been going up, and up, and up. Yes,
sometimes there is a turn in the market and the price of real estate declines … for a period of
time. However, those conditions do correct themselves and the trend line remains, as it has
been since 1492, up and to the right on the grid. The idea is that with a real estate purchase
the capital, which is the investment, is working for the purchaser/owner. Yes, they may have a
job, and yes they may be making monthly payments on their home as they live in the home.
The fact remains that the money invested (capital) for this purchase is working for the owner …
which is the function of capitalism. With capitalism, the owners’ money is working for them,
bringing the owner a return, making them wealthier.
The bank does pay the depositor for money deposited with them, and the money deposited
with the bank is loaned out to other people who will pay the bank interest (the cost of
borrowing) for the use of the borrowed money. A part of the interest paid by the borrower is
returned to the depositor as a payment for the depositor’s money and its use by the bank.
Again, this is capitalism at work. Money working for its owner.
Another cash accumulation is when an employer deducts from their employees’ paychecks
money for a retirement account, such as a 401k or any other retirement fund. Those withheld
monies are transferred to people who invest them into stocks, bonds, investment trusts,
etcetera. Those monies begin to work for their owners, resulting in an increase in the size and
value of their retirement fund. Capitalism is again at work with money working for its owner. 18
Two points with respect to personal finance: (1) Pay oneself first for savings and

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