l;/;’;ldfkm’sd;gAV~Bond Math 1.- Dirk Schwartz‚ an analyst for TwoX Asset Management L.P.‚ is considering investing $1 million in one of three risk-free bonds. All are single-coupon bonds that make a single payment at maturity. Although interest accrues daily‚ no cash is paid until the bonds mature. Bond A matures in two years and promises an annual interest rate of 9%. Compounding occurs annually; accrued interest is added to the bond’s principal at the end of each year. Bond B has a maturity
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E9–1 Penny Arcades‚ Inc.‚ is trying to decide between the following two alternatives to finance its new $80 million gaming center: a. Issue $80 million of 5% bonds at face amount. b. Issue 2 million additional shares of common stock for $40 per share. Issue Bonds Issue Stock Operating income $12‚000‚000 $12‚000‚000 Interest expense (bonds only) Income before tax Income tax expense (35%) Net income $___________
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CHAPTER 16 MANAGING BOND PORTFOLIOS 16-1 Outline of the Chapter • Bond pricing and sensitivity of bond pricing to interest rate changes • Duration analysis – What is duration? – What determines duration? • Convexity • Passive bond management – Immunization • Active bond management 16-2 Interest Rate Risk • There is an inverse relationship between interest rates (yields) and price of the bonds. • The changes in interest rates cause capital gains or losses. • This makes fixed-income investments
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two bonds. Each has a maturity of 5 years‚ a par value of $1‚000‚ and a yield to maturity of 12%. Bond A has a coupon interest rate of 6% paid annually. Bond B has a coupon interest rate of 14% paid annually. a. Calculate the selling price for each of the bonds. ANSWER: b. Mark has $20‚000 to invest. Judging on the basis of the price of the bonds‚ how many of either one could Mark purchase if he were to choose it over the other? (Mark cannot really purchase a fraction of a bond‚ but
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transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds‚ and commodities include precious metals or agricultural goods. The project “Investment in Financial Markets” gives a brief idea regarding the various investment options that are prevailing in the financial markets in India. With lots of investment options like banks‚ Fixed Deposits‚ Government bonds‚ stock market‚ real estate‚ gold and mutual funds the common investor ends up more confused
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Practice Questions for AMFI Test 1. A close-ended mutual fund has a fixed : a. NAV b. fund size c. rate of return d. number of distributors 2. The maximum load that a fund can charge is determined by the : a. AMC b. SEBI c. AMFI d. distribution agents based on demand for the fund 3. The amount required to buy 100 units of a scheme having an entry load of 1.5% and NAV of Rs.20 is : a. Rs.2000 b. Rs.2015 c. Rs.1985 d. Rs.2030 4. A gilt fund is a special type of fund that invests
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The Cost of Capital Project: Internet Version {December 2009} By Wm R McDaniel‚ PhD Objective The assignment is to estimate the weighted average cost of capital (WACC) for an actual corporation as of the current time. Actual managers would need to know their company’s WACC as a starting datum to estimate the discount rate to use in the net present value analysis of new projects or of termination decisions. The student will later need to know the technique for application in some case
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Econ 252 Spring 2011 Final Exam Econ 252 - Financial Markets Professor Robert Shiller Spring 2011 Professor Robert Shiller Final Exam Instructions: • • • • • • • • The exam consists of a total of twelve pages including this coversheet. There are two parts to this exam. In Part I‚ answer any sixteen of the twenty questions‚ five minutes each. The total for Part I is 80 minutes. In Part II‚ answer all seven questions. The total for Part II is 70 minutes.
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Sue Pansky‚ a retired grade-school teacher‚ is considering investing in Starting Right. She is very conservative and is a risk avoider. What do you recommend? Answer: Since Sue Pansky is a risk avoider she should invest in the corporate bonds. The bond would return 13% per year and at least $ 20‚000 back at the end of the year. 2. Ray Cahn‚ who is currently a commodities broker‚ is also considering an investment‚ although he believes that there is only an 11% chance of success. What do you
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1. A bond with face value $1000 has a coupon rate of 8% and the market rate of 10%. What is the bond’s price? 2. A 6-year ABC bond (face value of $1000) pays interest of $80 annually and sells for $950. What are its coupon rate‚ and yield to maturity? If ABC wants to issue a new 6-year bond at the same face value and price‚ what will the new coupon rate be? 3. A 30-year Treasury bond is issued with face value of $1000‚ paying interest of $60 per year. If market yields increase shortly after
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