Q1. A company generally has two ways to handle its sinking fund: It can either call...
Q1. A company generally has two ways to handle
its sinking fund: It can either call its bond or purchase its bonds
on the open market. If you are the financial manager of the
company, how should you do?
Q6: Compare the interest rate risk and reinvestment rate risk between a 10-year bond and a 1-year bond. We assume the two bonds have the same coupon rate at 10%.
Homework Answers
Q 1 . A company has certain expense, which it has to incur from time to time eg, repayment of a long-term debt, replacement of depreciated assets etc. A sinking fund is a type of fund which asides money for a particular purpose like timely repayment of the debt, purchase of fixed asset etc.
Company can take decision to all call its bond or purchase its bonds on the open market. One of the ways it can decide the same is by the prevailing interest rates.
In case the interest rates decrease, the bond prices issued by the company increases, thus the company can call the bonds at the face value, which is lower than the current market price of the bonds.
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Q1. A company generally has two ways to handle
its sinking fund: It can either call...
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1st blank options = par value, coupon payment, price 2nd blank options = bankruptcy, default, liquidation...
1st blank options = par value, coupon payment, price
2nd blank options = bankruptcy, default, liquidation
3rd blank options = convertible provision, sinking fund
provision, call provision
4th blank options= call provision, call premium,
convertibility provision
5th blank options = floating-rate, fixed-rate
6th blank options = indenture, trustee, debenture
7th = multiple choice
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To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is...
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A portfolio manager is considering buying two bonds. Bond A matures in three years and has...
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Q1) A stock fund has an expected return of 15% and a standard deviation of 25%...
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1st blank options = par value, coupon payment, price
2nd blank options = bankruptcy, default, liquidation
3rd blank options = convertible provision, sinking fund
provision, call provision
4th blank options= call provision, call premium,
convertibility provision
5th blank options = floating-rate, fixed-rate
6th blank options = indenture, trustee, debenture
7th = multiple choice
1. Characteristics of bonds To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential. For example: • A bond's_ par...
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