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We have earlier studied that the investor may have to carry cash for some time because of discrepancies arising between the timing of the bond's cash-flow and the liability. Suppose we assume that he can borrow for a short time period, then he can depend on cash flow occurring after a liability to cover it. Constructing a bond portfolio with cash-flow around rather than prior to the maturities of the liabilities is less restrictive. Hence it should be easier and cheaper. This strategy is based on the assumption of cost of borrowing cash. If the cost is actually higher than the assumed cost, then the risk of being short to fund the liabilities may arise.
Callable bonds must be avoided as they may bring in uncertainty in the bond portfolio cash flow.
Excluding default risk.
Assume a 10% discount rate with respect to both the bonds.
What is the Benefits of divestment ¸ Releases cash tied up to finance more promising opportunities. ¸ Reduces diversification and complexity of a group in case of a demerger
Q. Process of financing working capital? Working capital policies on the process of financing working capital can be characterised as moderate, conservative and aggressive. A c
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Critically examine the pay-back period as a technique of approval of projects.
We have seen the valuation of bonds with embedded option using binomial model. This method can be used when cash flows do not depend on how interest rates evolve.
The fundamental principle is that when a tree is used to value an on-the-run issue, the resulting value should be arbitrage free i.e., it should be equal to the o
how to do such an assignment?
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Q. What do you meant by Yield? Investment should be in such securities which yield the highest return. However, safety should not be sacrificed at the expense of yield. How
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