When people need money to pay for housing, food, and clothes, what do they look for?

Bond valuation [LO14-2] Your investment department has researched possible investments in corporate debt securities. Among the a

Sonbull [250]

Answer:

Bond Valuation

Other things being equal, the bond issue that offers the most attractive investment opportunity if it can be purchased at the prices stated is:

= BB Corp. bonds.

Explanation:

a) Data and Calculations:

Maturity period = 20 years

Issue date = January 1, 2021

Maturity date = December 31, 2040

Company Bond Price Stated Rate Annual Interest FV

1. BB Corp. $ 107 million 15 % $15 million $3,518,371,301.23

2. DD Corp. $ 100 million 14 % $14 million 2,827,106,832.58

3. GG Corp. $ 93 million 13 % $13 million 2,260,756,079.53

From an online financial calculator, the future values of the bonds are:

N (# of periods) 20

I/Y (Interest per year) 15

PV (Present Value) 107000000

PMT (Periodic Payment) 15000000

Results

FV = $3,518,371,301.23

Sum of all periodic payments $300,000,000.00

Total Interest $3,111,371,301.2

N (# of periods) 20

I/Y (Interest per year) 14

PV (Present Value) 100000000

PMT (Periodic Payment) 14000000

Results

FV = $2,827,106,832.58

Sum of all periodic payments $280,000,000.00

Total Interest $2,447,106,832.58

N (# of periods) 20

I/Y (Interest per year) 13

PV (Present Value) 93000000

PMT (Periodic Payment) 13000000

Results

FV = $2,260,756,079.53

Sum of all periodic payments $260,000,000.00

Total Interest $1,907,756,079.53

8 0

3 years ago

If you believe the economy is about to go into a recession and your portfolio consists of growth stocks, defensive stocks and lo

lana66690 [7]

Answer:

Growth stocks; Long-term bonds

Explanation:

If you believe the economy is about to go into a recession and your portfolio consists of growth stocks, defensive stocks and long-term bonds, you might change your asset allocation by selling<u> Growth stocks</u> and buying <u>Long term bonds.</u>

As in the given case, the economy seems to be in trouble and chances that it may go into recession, then there is a high-risk float in the money market which may reduce the growth of stocks and long term bonds have fixed income, therefore, while allocating assets during the recession, people should sell growth stocks and buy long term bonds.

5 0

4 years ago

The price of Chive Corp. stock will be either $86 or $119 at the end of the year. Call options are available with one year to ex

marshall27 [118]

Answer and Explanation:

a). Step 1: Calculate the option value at expiration based upon your assumption of a 50% chance of increasing to $119 and a 50% chance of decreasing to $86.

The two possible stock prices are:

S+ = $119 and S– = $86. Therefore, since the exercise price is $85, the corresponding two possible call values are:

Cu= $34 and Cd= $1.

Step 2: Calculate the hedge ratio:

(Cu– Cd)/(uS0– dS0) = (34 – 1)/(119 – 86) = 33/33 = 1

Step 3: Form a riskless portfolio made up of one share of stock and one written calls. The cost of the riskless portfolio is:

(S0– C0) = 97 – C0

and the certain end-of-year value is $86.

Step 4: Calculate the present value of $86 with a one-year interest rate of 5%:

$86/1.05 = $81.90

Step 5: Set the value of the hedged position equal to the present value of the certain payoff:

$97 – C0= $81.90

C0 = $97 - $81.90 = $15.10

b). Step 1: Calculate the option value at expiration based upon your assumption of a 50% chance of increasing to $119 and a 50% chance of decreasing to $86.

The two possible stock prices are:

S+ = $119 and S– = $86. Therefore, since the exercise price is $115, the corresponding two possible call values are:

Cu= $4 and Cd= $0.

Step 2: Calculate the hedge ratio:

(Cu– Cd)/(uS0– dS0) = (4 – 0)/(119 – 86) = 4/33

Step 3: Form a riskless portfolio made up of four shares of stock and thirty three written calls. The cost of the riskless portfolio is:

(4S0– 33C0) = 4(97) – 33C0 = 388 - 33C0

and the certain end-of-year value is $86.

Step 4: Calculate the present value of $86 with a one-year interest rate of 5%:

$86/1.05 = $81.90

Step 5: Set the value of the hedged position equal to the present value of the certain payoff:

$388 – 33C0= $81.90

33C0 = $388 - $81.90

C0 = $306.10 / 33 = $9.28

3 0

3 years ago

The owner of a store that sells fine-quality fabrics for home seamstresses bemoans the fact that few young women know how to do

eduard

Answer:

The answer is: A) core competencies that have become core rigidities.

Explanation:

The core competencies of a business are what makes that business have an strategic advantage over its competition. In this case, the store sells the best high quality fabrics.

In the past the store had an strategic advantage since they sold a great product, but nowadays very few people are interested or willing to buy their fabrics. So what once was a core competency has now become a core rigidity. The store relied for too long on their core competency until it became obsolete. A textbook example for this is Kodak and its photographic film.

3 0

3 years ago

Because services are inseparable, they cannot be tried before they are purchased. To counteract this, a service firm might:

sdas [7]

Answer:

A, Offer a guarantee for the customer's complete satisfaction.

Explanation:

SInce services are inseperable beacuse there cannot be trials unlike in some goods, the only way to keep a customer's mind at rest over the service he or she is getting to give a guarantee as to the quality of the service such that the customer is satisfied and can purchase the service.

For example, giving a customer a time frame for the durability of a service and also a consideration for re-service before the set or supposed time is a way of giving customer guarantee about a service he or she is purchasing

.

Cheers.

4 0

3 years ago