Chapter 1 Note: the summaries at the end of each chapter are good study tools. Corporations A corporation is a permanent entity‚ legally distinct from its owners‚ who are called shareholders or stockholders. A corporation confers limited liability to its owners: shareholders cannot be held personally responsible for the corporations’ debts; they only stand to lose their investment. To incorporate‚ you work with a lawyer to prepare articles of incorporation‚ which set out the purpose of the
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Consider the following two bond issues. Bond A: 5% 15-year bond Bond B: 5% 30-year bond Neither bond has an embedded option. Both bonds are trading in the market at the same yield. Which bond will fluctuate more in price when interest rates change? Why? The 30 year bond will fluctuate more in price. This is because of the sensitivity factor of bonds. The longer the bond is the more delayed the full payment is at the end of the bonds maturity. Therefore this bond is more sensitive and risky
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RBI/2011-12/ 9 Master Circular No.9 /2011-12 To‚ All Category – I Authorised Dealer Banks Madam / Sir‚ July 01‚ 2011 Master Circular on External Commercial Borrowings and Trade Credits External Commercial Borrowings and Trade Credits availed of by residents are governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act‚ 1999 read with Notification No. FEMA 3/ 2000-RB viz. Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations‚ 2000
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Chapter 1: Bond Prices‚ Discount Factors and Arbitrage 1. Use this list of Treasury bond prices as of January 15‚ 2013 (which should be taken as the current date for all the questions below except for question 7) to derive the discount factors for cash flows to be received in 0.5‚ 1‚ 1.5 and 2 years. Bond Price 6.0s of 7/15/13 102-15+ 5.0s of 1/15/14 103-7 3/4 8.0s of 7/15/14 107-24 4.0s of 1/15/15 100-23 1/2 Answer: (a) To find d(0.5) The equation from the 6.0s of 15 July
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Question 1: Lynos Document Storage’s controller‚ Eric Petro‚ told Rene that the bonds were issued in 1999 at a discount and that only approximately $9.1 million was received in cash. Explain what is meant by the terms “premium” or “discount” as they relate to bonds. Compute exactly how much the company received from its 8% bonds if the rate prevailing at the time of the original issue was 9% as indicated in Exhibit 2. Also‚ re-compute the amounts shown in the balance sheet at December 31‚ 2006‚
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optimize the yield on temporary surplus fund. What is it? The money market is a subsection of the fixed income market. We generally think of the term fixed income as being synonymous to bonds. In reality‚ a bond is just one type of fixed income security. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt that matures in less than one year). Money markets investments are also called cash investments because of
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1. Travis Corp.’s bonds currently sell for $1‚050. They have an 8% annual coupon rate and a 20-year maturity‚ but they can be called in 5 years at $1‚120. Assume that no costs other than the call premium would be incurred to call and refund the bonds‚ and also assume that the yield curve is horizontal‚ with rates expected to remain at current levels on into the future. Under these conditions‚ what rate of return should an investor expect to earn if he or she purchases these bonds? a. | 7.51% |
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Bonds-1. Interest on a certain issue of bonds is paid annually with a coupon rate of 8%. The bonds have a par value of $1‚000. The yield to maturity is 9%. What is the current market piece of these bonds? The bonds will mature in 5 years. P= CPN x (1/y) {1-[1/(1+y)^n] + [FV/ (1+y)^n] CPN= 1000 x .08= 80 P= 80 (1/.09) {1- [1/(1.09)^5]} + [1000/(1.09)^5] = 73.39 (.351) + 649.35 = $675.11 Bonds-2. A certain bond has 12 years left to maturity. Interest is paid annually at a coupon rate of 10%. The bonds
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Medicare Bonds: things to know Introduction The Centers for Medicare & Medicaid Services (CMS) had made it mandatory in 2009 for medical equipment suppliers to obtain a Surety Bond. This bond termed as ‘Medicare or Medicaid Bond’ is required for Suppliers of Durable Medical Equipment‚ Prosthetics‚ Orthotics‚ and Supplies. The purpose of this bond is to prevent any medical abuse and fraud. If a supplier is found to be involved in any unethical activities such as selling unnecessary medical equipment
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order to generate an binominal tree‚ then we get the risk-free bonds’ model prices. With the help of Excel‚ we minimize the sum of squares of the difference between the model price and the market price by adjusting the a set of theta. Finally‚ we get the real binominal tree.(sheet Ho-Lee model) Question4: show how to value market interest rate prevailing at that date(think of floating rate bond ) Because the floating rate bond is always at par‚ the coupon rate equal to the market interest rate
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