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Market participants' measure the default risk of an issue on the basis of the credit ratings that the credit rating agencies assign to the issues. Once rating is assigned, the agency continuously monitors the credit quality of the issuer and updates the ratings from time to time. Rating agency is empowered to either upgrade or downgrade the ratings. An unexpected downgrade increases the credit spread and a fall in the bond's price. The risk involved here is the downgrade risk and is closely related to credit spread risk.
a) On 1 st January 2010, Grimm issued 400,000 convertible £1 6% debentures for £600,000. The professional fees associated with the issue were £40,000 and the fair value of simil
Treasury Notes or T-notes are the securities issued with maturities of more than one year and but not more than 10 years. All these securities are coupon securiti
We have seen computation of present value using single discount rate. But the right way to value a cash flow of a bond is to use multiple discount rates, i.e valuing th
Evaluation of change in credit policy Current average collection period = 30 + 10 = 40 days Current accounts receivable = 6m × 40/ 365 = $657534 The Average collection pe
How does a sinking fund function in the retirement of an outstanding bond issue? Where a company puts payments that are then used to buy back outstanding bonds is known as a si
Bond's potential returns are calculated using measures like Yield to Maturity (YTM) and cash flow yield. Both these measures are not free from s
In all previous illustrations, we assumed that coupon payments are paid on annual basis. However, most of the bonds carry interest payment semi-annually. Semi-ann
Q. Illustrate the Nature of Financial Management? Less Descriptive as well as More Analytical: - Financial management is less descriptive and more analytical. Because of the
Financial Control: - The establishment as well as use of financial control devices is an important function of financial management. These devices comprise: Budgetary Contro
We need to have done some exploration work on all of the major projects for inclusion in our prospectus, but of our $4m we need at least $1m in the bank to pay for all the listing
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