Your Questions About How To Invest In Bonds

Lizzie asks…

College Major,Stocks and bonds.?

If i want to learn about stocks,bonds,investing, and how to make money and understand those kind of stuff what should I major in College or classes I should take.

John answers:

A Finance major is the most applicable to those areas, but you don’t need it to understand them.

If you simply want to be a smart investor, there are many good books that can get you started (not written by Jim Cramer!).

If you want to make a career out of it, Finance is the most applicable, but other courses will be necessary – accounting, management, economics.

If your college offers an undergrad business program you’ll have plenty of choices. Many schools don’t offer much beyond economics (which won’t help much). If you go to one of these schools, outside learning will be your best bet.

Books –
Greenblatt – You Can Be a Stock Market Genius
Peter Lynch – One Up On Wall Street
Phillip Fisher – Common Stocks, Uncommon Profits
If you are really serious – Graham & Dodd – Security Analysis

Theses are just a few.

Ruth asks…

How can China buy all these bonds if their GDP is much lower than ours?

To me that would mean that China is loaded with money, but they are not the richest nation on earth. So why are they buying all these bonds and investing their money in them. And is that a good thing or a bad thing that they buy all these bonds?

John answers:

Not only can they, they have to.

China has a high savings rate, and doesn’t sell their bonds to foreigners. They also have a trade surplus with the US, meaning they sell us more stuff than we sell them (makes sense, we have more money, right?).

In exchange for goods, the Chinese get dollars. What to do with them? They buy US bonds with them, which represent a part of the US’ total economy.

There’s other arguments to where they purposefully buy US treasuries to keep our currency artificially high compared to theirs, but that’s another topic.

Donna asks…

How would I do this: Suppose that you received an unexpected inheritance of $36,000. You have decided to?

invest the money by placing some of the money in stocks and some in bonds. To diversify, you decided that five times the amount in bonds should equal three times the amount invested in stocks. How much should be invested in stocks? How much should be invested in bonds?

John answers:

Let s = the amount of money to be invested in stocks
Let b = the amount of money to be invested in bonds

You plan to invest all the of the money you have unexpectedly received, so s + b = 36000

Also, since “five times the amount in bonds should equal three times the amount invested in stocks” That means 5b = 3s

Now you have two independent equations

s + b = 36000
5b = 3s

re-arranged a bit for convenience these might look like

s + b = 36000
-3s + 5b = 0

Now multiply both sides of the first equation by 3 giving

3s + 3b = 108000
-3s + 5b = 0

Add the two equations giving

0s + 8b = 108000

solve for b giving

b = 13500

Now substitute this numerical value for b into one of the original equations giving

s + 13500 = 36000

solve for s giving

s = 22500

So, $22,500 should be invested in stocks and $13,500 should be invested in bonds.

Check:

22500 + 13500 = 36000
5(13500) = 3(22500)

Paul asks…

Should I use student loans to invest in bonds?

I’m thinking about taking out student loans to invest in bonds that will mature before I graduate. Are there any possible problems with this strategy? The loans will not require repayment till 6 months after graduatation, and as it stands, I do not need to take the loans to pay for school.

John answers:

Depends on your credit if the interest rate on the student loans will be higher then the gain the the bonds.

Mary asks…

How much was invested in stocks and how much was invested in bonds?

You invested $11000 in stocks and bonds, paying 5% and 8% annual interest, respectively. If the total interest earned for the year was $720, how much was invested in stocks and how much was invested in bonds?

John answers:

$5333.50 in stocks —- $5666.50 in bonds…. Close enough?…

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