Part Two: Final Project 2: Portfolio Analysis

Part A: Research Online Trading Sites and DRIPs

For this part of the assignment, 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 ishttp://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. (23 pages)
2. Search the Web for three companies (look for investor information) that offer DIPs or DRIPs. (23 pages)
3. Compare and contrast the requirements, including minimum investments, nature of the return, costs, and other features. (12 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
Maturity
Frequency
Rating

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 bonds ratings and your determination of its yield to maturity, explain how you rank each bond for risk and return.

Below is the what my instructor gave as an example... I am literally confused!!

Example: TD Ameritrade, E*TRADE and Fidelity are three popular online brokerage accounts that allow individuals to buy and sell stock, invest in IRAs, investment funds for education and retirement, monitor stocks and learn about trading. While the services offered by each company are largely similar, there are also many different criteria which vary and can add up to large fees. Fees and Commissions such as charges per trade, minimum trade, broker assisted trades, minimum required balances and account maintenance fees are all important considerations and vary with each company. The availability of educational information and online tools can also be very helpful.
Before deciding on which online broker to use, you should consider a few key facts such as your financial means, trading activity and expertise. Although most of the top firms are similar, even a seemingly slight difference could end up costing a lot of money in the end.
How much money you plan to invest. Most firms require investors to have a certain amount of money to open an account. This is different from a minimum account balance -- although most brokerages have those, too.
How frequently you plan to make trades. Are you going to buy one stock and hold on to it? If so, you'll need to make sure the brokerage doesn't charge a fee for account inactivity. On the other hand, if you're going to make lots of trades, you'll want a lower fee per trade. Regardless of how much you plan to use your account, you should evaluate how much using the site will cost you.
Your level of trading experience and how much guidance you need. Some of the least expensive brokerages don't offer much in the way of research or broker-assisted trades. Others, while still moderately priced, offer market analysis, articles on successful trading and help from licensed brokers.
Any other services you may want. A few trading sites let you buy and sell stocks but not much else. Others are more like major banks, offering debit cards, mortgage loans and opportunities for other investments like bonds and futures.
TD Ameritrade ANY account maintenance fee? WHAT DO They offer? Is THERE A minimum required balance to open an account? If you require assistance, there is a fee for broker assistance? ANY FEE ON THE automated voice response phone system for ?
E*TRADE offers a Complete Investment Account which has a tiered fee schedule WHAT IS IT?
Fidelity.com ANSWER THE SAME QUESTIONS.
While all three companies offer investments such as stocks, options, mutual funds, exchange traded funds, retirement accounts and education savings; WHO OFFERS INTERNATIONAL TRADES? All three companies also offer extensive on line tools such as calculators, alerts, charts and graphs and automated trading. Customer support is offered by all three companies via telephone, email or through their website.
DO ANY companies waive the account maintenance fee? WHAT If you are an active trader (1,500 or more trades a month), WHO would provide the best value? All three companies also offer on line tools for trading to help the independent investor and have Broker assistance available at an additional cost. The investment options offered are also largely similar except TD Ameritrade does not have access to markets outside of the United States. WHA IS The main difference? WHO has the highest required balance?
Not all brokerages allow an individual to enter all kinds of trades through an internet connection. Some brokerages will not allow you to trade pink sheet stocks through the internet and some do not have any way to enter some types of orders, such as an OCO (one cancels the other) order, through the internet. Some brokerages do not have any way to enter a short sale through the internet. If you will be involved in any of these trades, broker fees can escalate quickly especially if you also need to occasionally call a broker just to ask for advice or help.
WHAT DOES Ameritrade OFFER ANSWER ALL THE QUESTIONS ABOVE.
After exploring these options for online trading, you may not be comfortable with the amount of cash required for minimum balances, trades and fees. In that case, a DIP or DRIP account may be more suitable for you and I will discuss these next.
References
"ETRADE Financial Investment Services Online Trading Retirement Banking." Etrade. 2013 Web.
27 04 2013. . [Accessed April 27, 2013]
"Pricing and Brokerage Commissions TD Ameritrade." Tdameritrade. 2013 Web.
27 04 2013. . [Accessed April 27, 2013]
"Online Stock Trading Review 2013 Best Online Trading Services Stock Trading Online TopTenREVIEWS." Toptenreviews. 2013 Web.
27 04 2013. . [Accessed April 27, 2013]
"Online Trading ETFs Mutual Funds IRAs & Retirement Fidelity." Fidelity. 2013 Web.
27 04 2013. . [Accessed April 27, 2013]
A Direct Investment Plan (DIP) or a Dividend Reinvestment Plan (DRIP) is a plan offered by a corporation that allows investors to ?
Enrollment in the 3M Corporation (MMM) program requires an initial purchase of one share, which is currently $??. There is a 2.50% dividend yield. There is a $1.00 reinvestment commission and this plan offers an optional cash purchase option on a monthly basis with a $10 minimum. There is a maximum purchase allowance of cash purchases of $10,000 per quarter. An optional cash purchase allows the investor to purchase stocks in addition to the stocks purchased with reinvestments. There are no fees on this account for reinvestment or additional purchases.
AT&T Corporation (T) also offers a minimum enrollment purchase of one stock, recently priced at $??. There is also a direct purchase option for enrollment which requires a $500 minimum investment. The yield is somewhat higher at 4.60%. The reinvestment commission is $1 but there is also a dividend reinvestment fee 5% to $2 + 3 to 5 per share fee for reinvestments. This plan also allows partial dividend reinvestment. The optional cash purchase offered with this program is weekly and is restricted to a $50 minimum and there is a $120,000 maximum purchase limit. There is also a fee for cash purchases of 5% $2.50 + 10 per share.
Dell Incorporated (DELL) has a minimum enrollment purchase of one stock at the recent cost of $??. Dell offers a direct purchase option with a $25 minimum and a cap of $10,000 per investment and charges a $1 reinvestment commission. Fees for additional investments are $2.50+10 per share but there is no fee charged for reinvestments.
Since this is a long term investment strategy, the importance of fees should not be overlooked. While compounding will work in the investors favor, fees can quickly deplete any advantage gained. Even though fees are capped at $2.50 for AT&T and Dell, a $25 per month investment would add up to a 10% loss in fees. While AT&T has the highest initial buy in cost, there are no fees for reinvestments or optional cash purchases. Dell and AT&T have much lower buy in costs but charge fees over the life of the investment.
While a DRIP is an option for the small investor, fees will hurt the small investor the most. For example, a $50 investment per month in a stock selling for $50, using a free Drip, yields 12 shares on a $600 investment. If the Drip charges $5 per OCP, after one year, you have 10.8 shares (an investment of only $540 after $60 in fees). If you invest the $600 with an online broker charging a $10 commission, you invest $590 and have 11.8 shares after a $10 commission. The fee-based Drip has charged you fees equal to six times as much as the discount broker, and you end up with one less share of stock.
If you opt to save and pool your money into a large sum and invest it all at once deprives you of the most significant benefits of a Drip: dividend reinvestment and dollar-cost averaging. If you have thousands of dollars to invest at one time, the effect of the fee is proportionately minimized. Thus, the small, diligent investor who is trying to set aside a few dollars for investment purposes (the person who can least afford it) is the one getting hurt the most by fees.
References:
"Online DRIP Database." Dripdatabase. n.d. Web.
29 04 2013. .
"DirectInvesting.com The Resource for SelfReliant Investors Since 1984." Directinvesting. n.d. Web.
29 04 2013. .
"DRIP Investing Dividend Reinvestment Plans and Direct Investing with DRIPs." Firstshare. 19952012 Web.
29 04 2013. .
"Benefits of Dividend Reinvestment PlansDRIPs." ezinearticles.com. n.d. Web.
29 04 2013. .
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	6.40%	5.40%	5.05%
Maturity	5/15/2038	9/10/2040	10/22/2012
Frequency	Semi Annual	Semi Annual	Semi Annual
Rating	A	A	AA
"Yahoo! Finance Business Finance Stock Market Quotes News." Yahoo. n.d. Web.
27 04 2013. .
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.
AT&T	$1,255.58
Dell	$836.41
IBM	$1,000.00
3. Determine the yield to maturity (YTM) on the bonds given the current price. Based on each bonds ratings and your determination of its yield to maturity, explain how you rank each bond for risk and return.
AT&T	5.00%	2.50%	5.00%
Dell	6.50%	3.36%	6.72%
IBM	5.05%
Rank based on risk: ?
Rank based on Yield: ?
If rating decreases, yield to maturity increases. IBM is the safest investment of all the three due to its bond rating of AA but produces a YTM of 5.05%
against Dell which has rating A and gives a YTM of 6.50%.