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1. Corporate Bonds. What are corporate bonds? Are corporate bonds subject to default risk? What are junk bonds? Why would investors purchase junk bonds?
2. Corporate Bond Quotations. List the information provided in corporate bond quotations.
3. Return on a Bond. When an investor sells a bond in the secondary market before the bond reaches maturity, what determines the return on the bond? How do interest rate movements affect bond returns in general?
Explain the assumptions underlying (a) the linear model and (b) the historical simulation model for calculating VaR.
Prepare a two page (double-spaced) essay presenting the investment consulting firm and answer the following question: Dimensional Fund Advisors "How does this firm make money by taking advantage of the Efficient Market Hypothesis?"
Explain why the top executive of Societe Generale are more likely to be blamed for the six billion euro loss than Jerome Kerviel. Do you think Jerome Kerviel should be held legally responsible for hos losses? And why or why not? What term does the ac..
Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 12.95 percent coupon rate and paid interest annually. It is now 5 years later. The current market rate of interest on the Bright Sun bonds is 10.53 percen..
Common Products has issued its $.0001 par value stock in two separate financing transactions. Transaction 1: five years ago, the founder of the company purchased 4,000,000 shares of stock for $100,000. If it currently has a yield to maturity of 5.5%..
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .5 percent per year, compounded monthly for the first six months, increasing thereafter to 17.6 percent compounded monthly. Assume you transfer t..
MMK normally pays an annual dividend. The last such dividend paid was $2.85, all future dividends are expected to grow at a rate of 8% per year, and the firm faces a required rate of return on equity of 13%. If the firm just announced that the next d..
A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8.70% with interest paid annually. If the current market price is $870, what will be the approximate capital gain of this bond over the next year if its yield to m..
How do you need to invest now at an interest rate of 10% compounded annually to provide sufficient funds to support withdrawals of $5000 in one year, $2000 in four years, and $6,000 in eight years?
You are considering two investments, a conventional, FDIC insured 1-year bank CD with an interest rate of 5% and a 1-year “Inflation Plus” CD offering 1.5% plus the rate of inflation, which is also FDIC insured. Which investment is safer? If you expe..
Would your portfolio be riskless? Explain. Now suppose the portfolio consists of $250,000 of 30-day Treasury bills. Every 30 days your bills mature, and you will reinvest the principal ($250,000) in a new batch of bills. You plan to live on the inves..
Knob, Inc., is a nationwide distributor of furniture hardware. The company now uses a central billing system for credit sales of $241.20 million annually. First National, Knob's principal bank, offers to establish a new concentration banking s..
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