### Explain why some bonds sell at a premium to par value

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I need 125 word reply to each of the following 8 forum post (1000 words total):

Forum #1

Complete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis.

A one year forward rate would be larger than the current 1 year rate as it would allow us to indicate that interest rates will likely be going up in the future. A zero couple yield curve is based on coupon bonds, and its relationship with time to maturity and interest rates. (Jordan, Miller & Dolvin, 2012) The shape of the zero coupon yield curve would be an upward slope, as it would imply that the forward rate curve settles above the spot rate curve, in an upward direction. Below are the calculations for the rate.

{1 + (.04144/2)}4 = {1 + (.03909/2)}2 (1 + f 1,1) = f1,1 = 4.427%

P1 = 100/[1.04427] = \$95.761

Jordan, B., Miller, T., & Dolvin, S. (2012). Fundamentals of investments, valuation and management (6th ed.). New York, NY: McGraw-Hill. ISBN: 13: 9780073530710

Forum #2

Complete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis.

One-Year STRIPS:

1. Find for interest rates; {1 + *.04144/ 2)} 4 = { 1 + .0390912)}2

2. Calculate out your Forward Interest Rate ( 1 + f1, 1) which gives you your EAR = 4.427%

3. Plug in your EAR percentage to obtain your one-year STRIPS on February 15, 2011 = P1 = 100 [1.04427] = \$95.761

Calculations;

{ 1 + (.0414412)}4 = { 1 + (.03909 /20}2

( 1 + f1.1) = f.1 = 4.427%

P1 = 100 / [ 1. 04427] = \$95.761

The implied 1-year Forward Rate is larger than the current 1-year spot rate which indicates that interest rates will go up in the future. Additionally, for upward-sloping term structures it implies that the forward rate curves lies above the spot rate curve.

Jordan, B., Miller, T., & Dolvin, S. (2012); Fundamentals of Investment, Valuation and Management (6th ed.). New York, NY

Forum Post #3

Complete Concept Question 9 of Chapter 10:

a. What is the relationship between the price of a bond and its YTM?

b. Explain why some bonds sell at a premium to par value, and other bonds sell at a discount. What do you know about the relationship between the coupon rate and the YTM for premium bonds? What about discount bonds? For bonds selling at par value?

c. What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value?

What is the relationship between the price of a bond and it's YTM?

The relationship between the price of a bond and its YTM would be that a bond price shows the present value and the YTM is the interest rate that is used in the valuation of the cash flow from the bond.

Explain why some bonds sell at a premium to par value, and other bonds sell at a discount. What do you know about the relationship between the coupon rate and the YTM for premium bonds? What about discount bonds? For bonds selling at par value?

The reason that some bonds sell at a premium to par value, and other bonds sell at a discount, would be the coupon rate. If the coupon rate is higher than the return on a bond, the bond sells at a premium, as it allows for income through coupon payments in addition to what some investors receive on bonds of a comparable nature. On the other hand, if the coupon rate is lower than the return on a bond, the bond generally sells at a discount, because it does not provide the same coupon payments as a bond that sells at a premium. The relationship between the coupon rate and the YTM for premium bonds would be that the coupon rate would exceed the YTM, as well as for discount bonds, the YTM would also exceed the coupon rate. As for the bonds selling at par value, the YTM would be equivalent to the coupon rate.

What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value?

The relationship between the current yield and the YTM for premium bonds would be that the annual coupon payment would be divided by the current rate of the bond, which would allow for the current yield to exceed the YTM. For discounted bonds, the YTM would be less. The yield would be equal to the YTM in regards for bonds that are selling at a par value.

Forum Post #4

Complete Concept Question 9 of Chapter 10:

a. What is the relationship between the price of a bond and its YTM?

b. Explain why some bonds sell at a premium to par value, and other bonds sell at a discount. What do you know about the relationship

between the coupon rate and the YTM for premium bonds? What about discount bonds? For bonds selling at par value?

c. What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value?

a. What is the relationship between the price of a bond and it's YTM?

The bond price is the present value when discounting the future cash flows from a bond; YTM is the interest rate used in discounting the future cash flows back to their present values.

b. Explain why some bonds sell at a premium to par value, and other bonds sell at a discount. What do you know about the relationship between the coupon rate and the YTM for premium bonds? What about discount bonds? For bonds selling at par value?

The relationship between the coupon rate and required return is the same as the relationship between the bond selling price and face value. That is, when the coupon rate is greater than the required return, then the selling price is greater than the face value. If the coupon rate is higher than the required return on a bond, the bond will sell at a premium, since it provides periodic income in the form of coupon payments in excess of that required by investors on other similar bonds. If the coupon rate is lower than the required return on a bond, the bond will sell at a discount since it provides insufficient coupon payments compared to that required by investors on other similar bonds. For premium bonds, the coupon rate exceeds the YTM; for discount bonds, the YTM exceeds the coupon rate, and for bonds selling at par, the YTM is equal to the coupon rate.

c. What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value?

Current yield is defined as the annual coupon payment divided by the current bond price. For premium bonds, the current yield exceeds the YTM, for discount bonds the current yield is less than the YTM, and for bonds selling at par value, the current yield is equal to the YTM. In all cases, the current yield plus the expected one-period capital gains yield of the bond must be equal to the required return.

Forum Post #5

In my opinion, corporate social responsibility is a company that conducts business legally and ethically while maximizing stockholder revenue and giving back to the community. When thinking of corporate social responsibility, the first company that comes to mind is TOMS. This company gives away one pair of shoes to a child in need for every one pair of shoes the corporation sells. In addition, they work with over 100 other partners to provide eye-wear, sight-saving surgery, medical treatment, and drinking water among other things. They help many countries not only by giving, but also by producing jobs within the countries where they give. The other company that I find really interesting is 5-hour energy. This company uses 99% of their profit to invent things that can be utilized to better the life of those in developing countries. One if the inventions, is an electrical bike that turns human mechanical energy into electricity for individuals that live off the grid. Other social efforts include the building of hospitals, advancement in medical treatments, and other inventions that produce a need like energy and water in a clean manner. These two companies transfer their power of successful organizations to focusing on giving back to society.

The first advantage gained by companies that proactively take steps to be philanthropically responsible is the recognition of such actions by the consumer. The second advantage is the tax incentive gained by such companies. Our textbook states that, "The federal tax code includes tax incentives to do so" (Abraham, 2012, Sect. 10.6). Although the act of giving to those in need is the primary reason, one cannot avoid the tax incentives that result from such actions.

References

Abraham, S. (2012). Strategic management for organizations. San Diego, CA: Bridgepoint Education.

Forum Post #6

I believe that corporate social responsibility can be described as in addition to a corporation making a profit for its shareholders; it also has a responsibility and social commitment to make a commitment to the community as well as help improve the environment. According to Abraham (2012), corporate responsibility was the conceptualization of Archie Carroll of the University of Georgia. Carroll built a pyramid that encompasses of various types of social responsibility that include; economic responsibilities, legal responsibilities, ethical responsibilities, and philanthropic responsibilities.

There are many different ways that a corporation can be socially responsible. Zappos is an online shoe and clothing company that embraces a culture of looking out for the well-being of their employees and making the world a better place. According to Smart Recruiters Blog (2016), Zappos is ranked #7 of corporate conscious companies as they donate a large amount of Zappos goods to charitable causes and also encourage their employees to volunteer. Zappos even goes as far as giving employees paid time off for volunteer work.

Another company that has shown a great deal of corporate social responsibility is Google. The California-based search giant established the Google Green initiative to make better uses of resources and support renewable power. Philanthropic responsibility has become very important to many companies. The advantages of philanthropic initiatives can be seen through corporate and individual tax breaks, as well as gaining loyal customers who choose to use a company's goods or services based on the philanthropic ventures that are being done to improve the local community and the environment.

Reference

Abraham, S. (2012). Strategic management for organizations. San Diego, CA: Bridgepoint Education.

Smart Recruiters Blog. (2016).https://www.smartrecruiters.com/blog/top-10-corporate-social-responsibility-initiatives/

Forum Post #7

As a company realizes the potential of expanding its business internationally, selecting the appropriate international strategies is instrumental in being successful. Abraham (2012) notes that as companies decide to expand internationally, they must consider the complexity of the venture, the commitment required, and the cost of doing business overseas in the decision-making process.

The types of international strategies that are appropriate depend on the type of product, service, or venture. Strategic alliances are one of the most popular international strategies and one that could be effectively implemented in the production of movies, management consulting, and establishing a school of business. Abraham tells us that "forming strategic alliances has become more popular over time because it allows firms to share both risks and resources as it tries to enter international markets" (2012, p. 295). Strategic alliances also offer advantages such as having a partner that is familiar with the country, culture, avoiding having to pay tariffs, and sharing technological skills, practices.

As for software and breakfast cereals, establishing a joint venture might prove to be a good international strategy. According to Abraham (2012), Starbucks (coffee) and Hewlett-Packard (computers) are two prime examples of successful joint ventures. Software and breakfast cereal could easily mirror this type of international strategy and become very successful in the world market. The type of international strategy to be selected depends on many different things that could create competitive advantages.

Reference

Abraham, S. (2012). Strategic management for organizations. San Diego, CA: Bridgepoint Education.

Forum Post #8

International strategy requires quite a bit of research into the relatively unknown to become successful. Understanding another country's culture can go a long way toward propelling a business's international interests into an area of profit, but sometimes exporting your own culture is the recipe for success. By taking a look at a few example businesses, this point can be illustrated.

The first business, movie production, can go both ways. You can become successful by understanding a country or region's culture and then try to create a movie about it. I think, though, this is a difficult sell if your entire staff is from a foreign market. Employing host country producers, directors, actors, and even staff may help in the process. Conversely, there are some concepts that transcend borders. Take, for example, the vast array of superhero movies that are box office smashes around the world. Despite their American origin, movie goers from all areas flock to the theaters to watch subtitled or translated versions. So market expansion and exporting both can be successful in this business.

Computer software is something I feel should be developed and produced wherever the cost is cheapest. Regardless of where it is made, most people enjoy the same advancements in technology. There may be a few differences in popular culture, but everyone wants interesting applications and useful business tools for the cheapest price. I believe exporting is the way to go with this industry. If there is a company that can be acquired, this can also be a successful way to generate a product locally that can cut down on shipping costs.

Breakfast cereals, as far as I am concerned, should be relegated to acquisitions. Buying local factories and tweaking a few recipes seems far less expensive than pushing a product overseas. Additionally, the various trends in dietary consumption will vary from country to country. Even the cartoon characters for children's cereal from one country to the next will be different. Better to stick with an established company and simply buy them up completely.

Management consulting is a difficult business to push outside of the country. This is for a number of reasons. First, like any foreign venture, there is the possibility of a language barrier. With management, specifically, this becomes increasingly problematic. Management styles alone differ from culture to culture, so what works in America, conceivable the entire strategy of the company, may be the very opposite of what works in another country. Couple this with the delicate translation of management terms and mannerisms and you have a very volatile mix of potential failure. If anything, I would stick to similar cultures for a venture such as this or ones looking to become more like where your business hails from.

I believe the most successful way for a school of business to enter a foreign market would be to form a strategic alliance with a reputable school in the host country. This enables them to offer opportunities for students to travel from both regions to the opposite area. This foot in the door can enable the school to build a reputation for itself, eventually increasing the chances for a successful launch of even a brick and mortar campus on foreign soil. This can also ease the transitional pains of tariffs through testing the waters. If the venture is unsuccessful, less is lost than if the school had jumped in with both feet.

Resource:

Abraham, S. (2012). Strategic management for organizations. San Diego, CA: Bridgepoint Education.

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