Was the broker being ethical by not informing john

Assignment Help Financial Management

Reference no: EM131301407

Ethical Dilemma. John is a relatively conservative investor. He has recently come into a large inheritance and wishes to invest the money where he can get a good return, but not worry about losing his principal. His broker recommends that he buy 20-year corporate bonds in the country's largest automobile company, United General. His broker assures him that the bonds are secured by the assets of the company and the interest payments are contractually set.

He explains that although all investments carry some risk, the risk of losing his investment with these bonds is minimal. John buys the bonds and over the next two years enjoys the steady stream of interest payments. During the third year, United General posts the largest quarterly loss in its history. Although the company is far from bankruptcy, the bond rating agencies downgrade the company's bonds to junk status. John is horrified to see the decline in the price of his bonds as he is considering selling a large portion of them to buy a home.

When he discusses his dissatisfaction with his broker, his broker tells him that he is still receiving his interest payments and if he holds the bonds until maturity he will not sustain a loss. The broker reiterates that in their initial meeting John's concerns were safety of principal and interest payments and the investment still offers both of these.

a. Was the broker being ethical by not informing John of the other risks involved in the purchase of bonds? Why or why not?

b. What could John have done differently with his bond investments if he anticipated buying a home in the next three to five years?

Reference no: EM131301407

Questions Cloud

Prepare monthly revenue-expense variance report for clinic : Detailed variance analysis. A dermatology clinic expects to contract with an HMO for an estimated 100,000 enrolees. The HMO expects one in four of its enrolled members to use the dermatology services per month. prepare monthly revenue and expense var..

Who are the persons or groups most affected by the problem : Who are the persons or groups most affected by this problem? Give the specific name or names of the reader for the proposal (The reader is the person/persons who can make the change).

For what price should mark sell the bond in given situation : What if Mark's Treasury bond in the previous problem had a coupon rate of 9% and new bonds still had interest rates of 8%? For what price should Mark sell the bond in this situation?

Write the keyboard module in another hdl such as verilog : Generate a video display that has a moving cursor controlled by the mouse using the Mouse and VGA_Sync FPGAcores. Use the mouse buttons to change the color of the cursor

Was the broker being ethical by not informing john : Was the broker being ethical by not informing John of the other risks involved in the purchase of bonds? Why or why not?

The annual fixed cost for the catheterization lab : ROI for investment Center. A new Cardiac Catheterization lab was constructed at Have a Heart Hospital. The investment in this lab was 950,000 in equipment cost and 50,000 in renovating cost. A desired return on investment is 12 percent. The annual fi..

Drive several of the higher rgb output bits : Modify the VGA Sync core to support a higher screen resolution and demonstrate it using one of the earlier example video designs.

Use in designing your cross-hedge strategy : Cross-Hedging (LO4, CFA2) You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. Assuming the Midcap 400 Index is at 858 and its futures contract size is 500 times t..

Summarize the main points of the article : Investors expect that the return on a risky bond to an investor will be higher than the return on bonds with less risk.

User Account

All Pages