Planning for two people in two different stages of life!

How will the Investors do? Part 5

Investor "A" Bought;

4 Ford Motor Credit Corporation 5.25% of 06/22/2009 paying $816.90 per bond or $3,267.60 principal. Investor "A" paid $10.95 for the broker’s commission and $95.22 to the bond seller for interest from December 22, 2008 to January 8, 2009 (the settlement date), since this bond issue pays interest twice a year on June 22 and December 22. The investor will get this money back on the next interest payment date, June 22, 2009. These 4 bonds will pay $105.00 to this investor on June 22, 2009. The investor will also get the principal of the 4 bonds or $4,000. Investor "A" paid $3,373.77 for the total transaction. The total returned on June 22, 2009 will be $4,105 to make another investment. That is a return of $731.23 or a simple 21.674% return in 166 investment days.

3 Royal Caribbean Cruises 8% of 05/15/2010 paying $890 per bond or $2,670 principal. Investor "A" paid $10.95 for the broker’s commission and $35.51 to the bond seller for interest from November 15, 2008 to January 8, 2009 (the settlement date), since this bond issue pays interest twice a year on May 15 and November 15. The investor will get this money back on the next interest payment date, May 15, 2009. These 3 bonds will pay $120.00 to this investor on May 15, 2009. The bonds will pay another $240 from May 15, 2009 to May 15, 2010. The total interest paid to Investor "A" by maturity will be $360. The investor will also get the principal of the 3 bonds or $3,000. Investor "A" paid $2,716.46 for the total transaction. The total returned on May 15, 2010 will be $3,360 to make another investment. That is a return of $643.54 or a simple 23.69% return in investment 18 months.

Investor "A" started with $8,400. They invested $2,716.36 in Royal Caribbean Cruises and $3,373.77 in Ford Motor Credit Corporation for a total of $6090.13. Investor "A" kept $2,309.87 in his interest giving brokerage account, buying 6 month CDs.


Investor "B" Bought;

10 Ford Motor Credit Corporation 5.25% of 06/22/2009 paying $816.90 per bond or $8,169 principal. Investor "B" paid $10.95 for the broker’s commission and $24.45 to the bond seller for interest from December 22, 2008 to January 8, 2009 (the settlement date), since this bond issue pays interest twice a year on June 22 and December 22. The investor will get this money back on the next interest payment date, June 22, 2009. These 10 bonds will pay $525 to this investor on June 22, 2009. The investor will also get the principal of the 10 bonds or $10,000. Investor "B" paid $8,204.40 for the total transaction. The total returned on June 22, 2009 will be $10,525 to make another investment. That is a return of $2,320.60 or a simple 28.285% return in 166 investment days.

10 Ahold Finance USA Inc 8.25% of 07/15/2010 paying $1,000 per bond or $10,000 principal. Investor "B" paid $10.95 for the broker’s commission and $396.68 to the bond seller for interest from July 15, 2008 to January 8, 2009 (the settlement date), since this bond issue pays interest twice a year on July 15 and January 15. The investor will get this money back on the next interest payment date, January 15, 2009. These 10 bonds will pay $412.50 to this investor on July 15, 2009. The bonds will pay another $825 from July 15, 2009 to July 15, 2010. The total interest paid to Investor "B" by maturity will be $840.82. The investor will also get the principal of the 10 bonds or $10,000. Investor "B" paid $10,407.63 for the total transaction. The total returned on July 15, 2010 will be $10,840.82 to make another investment. That is a return of $840.82 or a simple 8.08% return in 17 investment months.

5 Hertz Corp 9% of 11/01/2009 paying $980 per bond or $4,900 principal. Investor "B" paid $10.95 for the broker’s commission and $85.07 to the bond seller for interest from November 1, 2008 to January 8, 2009 (the settlement date), since this bond issue pays interest twice a year on May 1 and November 1. The investor will get this money back on the next interest payment date, May 1, 2009. These 5 bonds will pay $225 to this investor on May 1, 2009. The bonds will pay another $225 from May 1, 2009 to November 1, 2009. The total interest paid to Investor "B" by maturity will be $450. The investor will also get the principal of the 5 bonds or $5,000. Investor "B" paid $4,996.02 for the total transaction. The total returned on November 1, 2009 will be $5,450 to make another investment. That is a return of $453.98 or a simple 9.09% return in investment 297 days.

Money left out of the $25,000 went back into the IRA account for future investments.
These are big returns for income producing securities. So that also means that the risks are big as well. Nothing in the world of finance is guaranteed. The larger the potential for returns, the larger the risk taken by the investor. Business conditions can get worse for these companies to the point where they cannot go on paying interest or principal. Here is the reason why both investors are keeping their time in each investment short.

What would happen if the corporations invested in when Chapter 11? We will see in our next part.