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From an investment point of view, bonds are generally considered to be safer investments than stocks. They are generally low risk low return investments, unlike stocks. As an investor in bonds, you would lend money to the issuer of the bonds. It is important to understand what bonds are and how they work as investment vehicles. Suppose a friend of yours is looking to invest $5,000 such that it will provide current income and increase the diversification of his assets. He has heard a lot about corporate bonds but wants to learn more before purchasing them. Fill in the blanks in the following conversation to give your friend the appropriate information regarding corporate bonds.   FRIEND: Can you explain to me the basics of how investing in a corporate bond will increase my current income?   YOU: Under a standard bond agreement, if you were to purchase a 10-year, $5,000 corporate bond with a 9% coupon, you would receive _______________in interest each year, and at the end of…

From an investment point of view, bonds are generally considered to be safer investments than stocks. They are generally low risk low return investments, unlike stocks. As an investor in bonds, you would lend money to the issuer of the bonds. It is important to understand what bonds are and how they work as investment vehicles. Suppose a friend of yours is looking to invest $5,000 such that it will provide current income and increase the diversification of his assets. He has heard a lot about corporate bonds but wants to learn more before purchasing them. Fill in the blanks in the following conversation to give your friend the appropriate information regarding corporate bonds.   FRIEND: Can you explain to me the basics of how investing in a corporate bond will increase my current income?   YOU: Under a standard bond agreement, if you were to purchase a 10-year, $5,000 corporate bond with a 9% coupon, you would receive   in interest each year, and at the end of the 10-year…

A financial planner who claims to have a superior method for picking stocks is attempting to lure one of your clients away from you. He claims the best way to find the value of a stock is to divide EBITDA by the risk-free bond rate. He is urging your client to invest in Jeitu Inc. The planner says that Jeitu’s EBITDA of $1,580 million divided by the long-term government bond rate of 7% equals a total value of $22,571.4 million. With 318 million shares outstanding, Jeitu’s value per share using this method is $70.98.  Jeitu’s shares currently trade at $36.50.   a. Provide your client with an alternative estimate of value based on a two-stage FCFE valuation approach. Use the following assumptions: • Net income is currently $600 million. Net income will grow by 20% annually for the next three years. • The net investment in operating assets (capital expenditures less depreciation plus investment in working capital) will be $1,150 million next year and grow at 15% for the following two…

You are the CFO of a company and the CEO wants you to tell him which evolution we will see in interest rates in the near future (say this year and next year). What do you tell him and why? Should your company issue bonds now?

True or false 1.The free cash flow to equity will always be higher than the net income of the firm, because depreciation is added back. 2.Susan is expecting the economy to worsen over the next few years, perhaps falling into a recession. Investing in the construction industry should be part of Susan’s strategy.  3. Preference shares combine the fixed income features of bonds with the same price appreciation potential as ordinary shares.  4. Identify any one behavioural bias in each of the following statements: a) Mary writes the following letter to an investment columnist: “I invested quite a bit of money (R26 000) in Intel stock. Of course, like most technological stocks, it has been struggling, and on paper I am in trouble. Do you think it will ever reach the R80 that I paid for it? I really hate to cash it in for such a big loss and I don’t trust it enough to buy it at the low price (R8) it is now trading for. I feel like the company shows promise, but I am certainly not astute in…

You own stocks in an oil palm plantation company, and you read in the financial press that a recent bond offering has raised the firm’s debt-equity ratio from 30 percent to 55 percent. Discuss the effect of this change on the variability of the firm’s net income stream. Discuss how this change would affect your required rate of return on the common stock of the company. Provide your justification(s) to support your views in the answer space provided.

You are an investor who currently has a debt-equity ratio of 3:1. However you are planning to switch to a company which is completely equity financed. Your shares are currently worth $35,000.00, which you would use to finance shares purchase in the new firm.  If you wish to retain the same earning, how many dollars worth of shares will you need in the new company. Provide workings

Drag the tiles to the table. Each tile can be used more than once. Determine the most likely action that an investor will take for each scenario. 10,000 Price per Share ($) 5,000 buy 1997 hold sell Select the correct answer. ● A. ● B. Scenario An investor is waiting until it is clearer whether a stock will do well after a purchase. An investor thinks that a particular stock is not performing and worries the price of the shares may drop in the future. An investor doesn't own a particular stock but is considering adding it to her portfolio depending on how well it does in the near future. An investor who tracks market trends notices that a bull market is starting. Based on this stock price model, what is the best prediction of what the price will do next? 1998 1999 Time (years) start increasing keep decreasing C. hold value D. no way to predict 2000 Drag each tile to the correct box. Reset 2001 Next Action

You plan to purchase debenture bonds from one of two companies in the same industry that are similar in size and performance.  The first company has $800,000 in total liabilities, and $1,200,000 in equity.  the second company has $600,000 in total liabilities, and $400,000 in equity.  2. Which company's debenture bonds are less risky based on the debt-to-equity ratio? Explain. Show your calculations to support your decision.

Emma Li is considering investing in two securities, A and B, and the relevant information is given below: State of Economy Probability Return on Security A (%) Return on Security B (%) Bear 0.2 4 1.2 Bull 1-0.2 10 1.2 Suppose Emma borrowed from her friend 99 shares of security B, which is currently sold at $74, and sold all shares of the security. (She promised her friend she would pay her back in a year with the same number of shares of security B). Then she bought security A with the proceeds obtained in the sales of security B shares and the cash of $2,549 she owned. Calculate the standard deviation of her portfolio. Report your answer in decimal form, rounded to 4 decimal points.

Assume that you are a portfolio manager for a large insurance company. The majority of the moneyyou manage is from retired school teachers who depend on the income you earn on their investments. You have invested a significant amount of money in the bonds of a large corporation andhave just received news released by the company’s president explaining that it is unable to meetits current interest obligations because of deteriorating business operations related to increasedinternational competition. The president has a recovery plan that will take at least two years. During that time, the company will not be able to pay interest on the bonds and, she admits, if the plandoes not work, bondholders will probably lose more than half of their money. As a creditor, youcan force the company into immediate bankruptcy and probably get back at least 90 percent of thebondholders’ money. You also know that your decision will cause at least 10,000 people to losetheir jobs if the company ceases…

Investment Investors must make decisions about how much money to invest in various products. Their tolerance for risk as well as the return rates and minimum investment requirements comes into play in this decision making process. Oftentimes, the situation can be described as a linear programming problem, where the objective function is the return on investment. Answer the questions below to help the investor. Investor Matt has $727,000 to invest in bonds. Bond A yields an average of 8.6% and the bond B yields 8%. Matt requires that at least 4 times as much money be invested in bond A as in bond B. You must invest in these bonds to maximize his return. What is the maximum return? per year. Round to the nearest cent.

You have a new job as a Financial Planning assistant. Your client wants to invest money in stocks, bonds, and treasuries that have the dividend yields shown in the table below. Your job is to allocate their money across these three investments such that the total dollars of stocks is at least $10,000 more than the total dollars in bonds plus treasuries. In addition, they have identified the maximum investment in each of those three investment types (also shown below). Maximize the dividends earned. Your answer will be the total Dividends earned (rounded to whole dollars). Use Scenario 2 Stocks: yield % Bonds: yield % Treasuries: yield % Stocks: $max Bonds: $max Treasuries: $ max Scenario 1 2.22 2.04 1.93 170,000 60,000 50,000 Scenario 2 1.71 1.98 1.88 400,000 180,000 200,000 Scenario 3 1.14 3.03 2.08 410,000 300,000 300,000 Scenario 4 1.25 1.48 2.55 800,000 750,000 500,000

Wall Street performs a sort of financial alchemy" enabling the individual to benefit from institutions lending money to them, according to Adam Davidson, cofounder of NPR's "Planet Money." Individuals can Invest small amounts of their money in a 401(k), pooling their capital and spreading the risk. Saved If you invested in Fidelity New Millennium, FMILX, how much would you pay for 80 shares if the 52-week high is $32.26, the 52-week low is $26.38, and the NAV IS $31.88? Note: Round your answer to the nearest cent. Amount paid KA N

You are considering buying stock in the following two banks. Each of the banks has assets that are solely long-term corporate bonds. Bank One is financed by 10% equity and 90% deposits. Bank Two is financed by 25% equity and 75% deposits. Which of the following scenarios would lead to the best outcome for Bank One relative to Bank Two? Higher inflation A recession Improving corporate credit ratings

Olivia Hawkins is evaluating a bond investment in Westlake Company. She is concerned about the corporation’s ability to make future interest payments. Determine the company’s time’s interest earned ratio if the company has operating income before interest and taxes of $12,235 million and interest expense of $1,025 million and interpret it.