Trading Sites, DRIPs and Bonds
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Research Online Trading Sites and DRIPs
you will evaluate the choices in purchasing stock via online brokerage accounts (where you can buy and sell stock via the Internet) and the use of dividend reinvestment plans (known as DIPs and DRIPs) or mutual funds or index funds.
For online brokers, you will be looking for the requirements to open the accounts: costs, minimum balances, and other features. Because most DIPs or DRIPs are available from publicly traded companies, you can search their Web sites or a search engine on these plans and their requirements.
Perhaps the most famous and useful Web site for these programs is http://www.directinvesting.com/. You are to compare and contrast online brokerage to DIPs and DRIPs.
Required:
Research online trading sites and DRIPS as outlined below, and summarize your findings. Make sure to include a summary table of the relevant information.
1. Search three online trading sites, and determine the requirements for trading, including the price per trade. Compare and contrast the online trading companies. (2-3 pages)
2. Search the Web for three companies (look for investor information) that offer DIPs or DRIPs. (2-3 pages)
3. Compare and contrast the requirements, including minimum investments, nature of the return, costs, and other features. (1-2 pages)
Part B: Research Market Data on Bonds
Research the current (within the last two months) market data on bonds from AT&T, Dell, and IBM. Assume each bond has a par value of $1000, unless otherwise indicated. Cite your sources.
AT&T Dell IBM
Coupon 6.80% 6.50% 8.4%
Maturity 26 years 27 years 9 years
Frequency Semi annual Semi annual Semi annual
Rating A A- A+
Required:
1. Complete the table above.
2. Calculate the value of the bond if your required return is 5% on AT&T, 6.5% on Dell, and 8% on IBM.
3. Determine the yield to maturity (YTM) on the bonds given the current price. Based on each bond's ratings and your determination of its yield to maturity, explain how you rank each bond for risk and return.
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Solution Summary
The value of the bond with a required return is calculated. The yield of maturity on the bonds given are determined.
Solution Preview
Let's visit the NASDAQ website; they have a list of some popular brokers that they recommend. http://www.nasdaq.com/investing/online-brokers/.
We will pick Scottrade, TD Ameritrade and optionsXpress.
To start, let's look at their requirements, Scottrade requires a min. investment of $500, while both TD and optionsXpress require no min. investments.
Next we look at their commission rates for trading stocks. For Scottrade, you pay $7 per transaction; TD charges $9.99 per transaction; and for optionsXpress, they charge $8.95 per trade (you need to check their page to find this information, http://www.optionsxpress.com/about_us/pricing_commissions.aspx).
We will also look at their rates for trading options. Scottrade charges $7 + $1.25 per contract, TD charges $9.99 + $0.75 per contract and optionsXpress charges $14.95 for 1-10 contracts, $1.50/contract for 10+ contracts. You can find this information by visiting their pages.
Which company is better? Well, it really depends on your needs. Scottrade charges the lowest commissions, so from a trading perspective this is the best broker of the three. If you buy some stocks and later sell them (this is 2 transactions), with Scottrade you only have to pay $14 in commissions whereas you would be asked to pay $20 with TD and $18 with optionsXpress.
In terms of minimum investment, Scottrade requires you to open your account with at least $500, while TD and optionsXpress require no minimum investment. It seems like TD and optionsXpress are better, but the truth is virtually no one is ever going to open an account and trade with anything less than $500. Imagine if you started trading with $300 at Scottrade. Buying and selling stocks ...
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