Reference no: EM133265024

Question 1: a) Your financial advisor has given you the following advice. A great Investment for your $20,000,000 should be in long term bonds offering an interest return of 16/20% per annum whereas short term bonds are only offering a much lower low interest rate. Is the financial advice good? Give your recommendations and reasoning in one page.

b) Calculate the percentage yield to maturity of a coupon bond face value $20, 000, purchased for $15000.00 with a coupon rate of 6% per annum that has 20 years to maturity and sold at 15 years.
c) Calculate the yield to maturity of a Cd$25,000 one year discount bond purchased for $20,000 sold at 270 days.

Question 2.
During various economic crises we have witnessed stock prices soaring prior to the crises (example 1980, 2008) taking hold and prices substantially declining as recessionary influences occur, causing a significant drop in stock prices. Economists would state that bubbles in market prices had been created prior to the crises. In 350 words max describe what bubbles are and how governments might utilize an economic model to help prick such stock market bubbles to normalize stock market prices and assist in the development of fiscal policy. Describe the model formula and give examples how it can be used.