3, 4, 7, 12, & 25 1. Bond Yields. A 30-year Treasury bond is issued with face value of $1,000, paying interest of $60 per year. If market yields increase shortly after the T-bond is issued, what happens to the bond’s a. coupon rate? The fixed rate is 6% and will not change the $60 per year. b. price? Price is dependent upon the market interest rate. If the market interest rate goes up, the bond price goes down; if the interest rate goes down, the price of the bond must increase. c. yield
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Manageable Student Loans FP/101 Manageable Student Loans After completing steps 1 to 3 in the tuition fees calculator for my current Associates Degree, I came up with a total tuition of $15.300 over a period of 14 months (Appendix A). Luckily I will not need to take any kind of loan for this amount as it is possible for me to invest the monthly portion of $1092 from my income. Nevertheless looking at the tuition fees for my upcoming Bachelors degree, which is amounting to a total of $37.000
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2003 CFA® Level II Examination Morning Session – Essay Candidate Number: FOR AIMR USE ONLY FOR AIMR USE ONLY _____ _____ _____ _____ _____ _____ THIS BOOK IS THE PROPERTY OF: Association for Investment Management and Research® 560 Ray C. Hunt Drive Charlottesville VA 22903-0668 USA Tel: 434-951-5499 © 2003 Association for Investment Management and Research. All rights reserved. The following list contains the command words used on the Morning Session of the 2003 Level II examination
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ANSWER AND SOLUTION TO MID-SEMESTER 2004 . You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows? a. The discount rate decreases. b. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same. c. The discount rate
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CRAB Rating Scale CRAB Long Term Rating Scale CRAB Short Term Rating Scale CRAB Long Term Rating Scale Rating Methodologies: It’s different for several sectors. Such as several methodologies for bank rating, financial institution rating, corporate rating, general insurance rating, life insurance rating, government owned enterprise rating and securitization rating. Other services: 1. Grading Services 2. Advisory & Consulting Services 3. Information Service
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Leverage Risk Leverage means that debt is combined with equity to purchase assets. A highly leveraged bank is a bank with high amounts of debt relative to equity capital. Because debt requires future payments for the issuer, a highly leveraged bank is less able to withstand unexpected shocks to its balance sheet. In short, a highly leveraged bank is more risky than a less leveraged one. The most straightforward measure of leverage risk is the ratio of equity capital to total assets, known as
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A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Solution: Coupon Payment = $1,000 × 3.7% = $37 ((10 years × 2) = 20 periods[pic] P = [pic][pic] = $481.29 + $414.64 = $895.94 Answer: $895.94 A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at
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(to ensure they sell) and involve direct flotation costs of $0.25 per share - has a total of $10,000,000 (par value) in debt outstanding. The debt is in the form of bonds with 10 years left to maturity. They pay annual coupons at a coupon rate of 11.3%. Currently, the bonds sell at 106% of par value. Flotation costs for new bonds would equal 6% of par value. The firm’s tax rate is 40%. What is the appropriate discount rate for the new project? Solution: Market value of common = 11.25(1000000)
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Calculate Invoice price for bond maturing Nov. 15, 2012 (in Excel). Assume today’s date is 1/15/2009 2. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 10%. 3. A) A zero-coupon bond with face value $1,000 and maturity of 6 years sells for $887.25. What is its yield to maturity? B) What will happen to its YTM if the price goes up to $899.99? 4. Why do bond prices go down when interest
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not be large for individual firms, they can provide additional sources of investment. * Many healthcare firms also have sizable funding requirements for defined-benefit pension plans and debt service requirements associated with the issuance of bonds. (Cleverley, Song & Cleverley). Cash management is tied together with the cash conversion cycle. This cycle “represents the time it takes a firm to go from an
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