Instruments would have the lowest level of default risk

Assignment Help Financial Management

Reference no: EM131896797

Please answer all questions in Parts 1 and 2. And show all calculations where necessary.

Part 1

1) A _______ ________ investor is one who does not like risk and uncertainty.

2) Investing in two or more assets whose returns do not always move in the same direction at the same time is referred to as portfolio ______________.

3) Portfolios that are not well diversified are exposed to

a) Market Risk

b) Systematic Risk

c) Conversion Risk

d) Unsystematic Risk

4) The market’s influence on an individual stock is quantified in the stock’s

a) Alpha Factor

b) Stock Price

c) Dividend Yield

d) Beta Factor

5) Bond covenants that allow the bond issuer to buy back bonds on demand are referred to as _________ provisions.

6) A Discount Bond is a bond whose coupon rate is greater than the market rate. True or False?

7) As interest rates decline, the price of a bond __________.

8) For the same change in interest rates, short term bond prices will change more than long term bond prices. True or False?

9) Which of the following instruments would have the lowest level of default risk;

a) Municipal Bonds

b) Equities

c) Treasury Bills

d) Convertible Bonds

10) The difference between a bond’s stated interest rate and the market risk free interest rate is called the;

a) Nominal Rate

b) Conversion Discount

c) Risk Premium

d) Call Factor

Part 2

1) You have the opportunity to purchase a four-year bond with a face value of $1,000 that pays 5% annual interest. How much should you pay for the bond if the current market rate of interest is 7%? Show your calculation/inputs.

2) List and describe the three Bond Theorems.

3) What would be the price of a $1,000 face value three-year bond with a coupon rate of 5%, paid semi-annually, providing a market yield of 8%? Show your calculations/inputs.

Reference no: EM131896797

Questions Cloud

Market has created more unpredictability for stocks : Do you think futures market has created more unpredictability for stocks ?

Deposit in the account today to meet his goal : If Manuel can earn an average of 7% on this fund, how much would he need to deposit in the account today to meet his goal?

What is effective cost of NZ dollar funds for Swiss Company : According to purchasing power parity, what is the effective cost of NZ$ funds for the Swiss Company?

Calculate the npv for project which has initial investment : Calculate the NPV for a project which has an initial investment of $1M and the following cash inflows for the next five years

Instruments would have the lowest level of default risk : The market’s influence on an individual stock is quantified in the stock’s. Which of the following instruments would have the lowest level of default risk;

What is the equivalent-annual cost of the trade credit : What is the effective, or equivalent, annual cost of the trade credit?

Sales outstanding on its cash conversion cycle : Quantitative Problem: Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle.

What is the required rate of return on okefenokee stock : What is the required rate of return on Okefenokee stock? Estimate the discount rate for an expansion of the company’s present business.

Proper cash flow amount to use as the initial investment : What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

User Account

All Pages