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Bonds are usually recognized by yields, which change from time to time owing to many market forces. There exists an inverse relationship between the bond price and the interest rates. When the interest rates rise, the bond's price decline; and when interest rates decrease, the bond's price increase. As the price of the bond fluctuates with market interest rates, an investor is exposed to a risk because the price of a bond held in his portfolio will decline if market interest rates rise. This risk is called interest rate risk.
It is also important to compare the returns from the equity stock and the bond to determine the profitability of both investments. We have seen above that the div
Long Term Solvency or Liquidity Ratio's DE: The Debt Equity ratio exhibits the relation that exists between debt and proprietor's fund and is considered a very im
The total return in case of mortgage-backed and asset-backed securities depend on the projected principal repayment and the interest earned on r
Illustration Consider a Rs.1,000 par value bond whose current market price is Rs.850. The bond carries a coupon rate of 8% and has a maturity period of 9 years. Wha
How would you incorporate political risk into the capital budgeting process of foreign investment projects? One method is to adjust the cost of capital upward to imitate politi
Ashok is to receive an amount of Rs. 15,00,000 from his relative after 3 years. He wants to buy a house for which he wants the money to be paid now. His relative had al
A callable bond is similar to an Option-free bond with a call option from the bondholder. It can be thought of as the sale of a call option by the investor
Cash Forecasting and Budget: It is used to get an idea of what a cash forecasted budget any might expect to earn in a fiscal year. You take last year's expenses, increased by
Define the P/E valuation method. Under what circumstances should a stock be valued using this method? The P/E ratio points out how much investor are willing to pay for each dol
State a process for benchmarking 1. Gain senior management commitment to establish benchmarking as a process within the organisation and educate stakeholders and staff about t
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