Bonds

e. If we evaluated at the same effective rate, the earlier payments would give the semiannual bond the higher value.

The bonds can be issues with fixed interest or variable rate interest, each of which has its advantages and there disadvantages.

(b) Coupon and principal of the Regular Treasury bonds are fixed, therefore if the inflation rate increases in the forecasting future, investor will receive the same amount of coupon and principal with less real value and purchasing power.

14. Global Enterprises has just signed a $3 million contract. The contract calls for a payment of $.5 million today, $.9 million one year from today, and $1.6 million two years from today. What is this contract really worth if Global Enterprises can earn 12 percent on its money?

What is the capital gains yields for the year for each bond assuming no change in interest rates?

6. How would you allocate your wealth between the Treasury bill (risk-free rate) and the

Dividend rate = 10% = 0.1 Total book value = $1,000,000; No. of preferred share = total book value / par value = 1,000,000/100 = 10,000 Price of preferred share = Dividend / Cost of preferred share = 10*0.1/0.08 = $125 Total market value of preferred share = $125 * number of pref. share = 125* 10000 = 1,250,000

If the company benefits from the provision of the bond, then the coupon rate will be higher. If the bondholder’s benefit, then the bond will have lower coupon rate.

- Swan- Davis Inc., (SDI) manufactures equipment for sale to large contractors, the company was found in 1976 and it went to the public in 1980 at its shares value risen from $1 to $15 since it enter to the market.

Certain forms of preferred stock, and to a limited extent debt, can also serve as capital.

The price of the bond with the little coupon will be most affected by changes in interest rates as the price of the great coupon bond. For a small coupon bond, the cash flows are weighted much more towards the maturity due to small interest payments dates. The great coupon bond has high interest

According to the stated condition, the investor will gain the benefit as the same as Series A, C preferred stockholder and common stockholder to buy sufficient shares to preserve the ownership share.

In an entrepreneur’s point of view, the investor will gain an advantage of acquiring preferred stock, unlike the entrepreneur who holds common stock. Since Preferred stock is senior to common stock (but subordinate to bonds) in terms of claim of the assets of the company in an event of liquidation. Also, although preferred stock usually carries no voting rights, but it may carry a dividend and may have priority over common stock in the payment of dividends.

For this project, five bonds have been selected to serve as the drivers of the bonds investments section. In this selection, diversification has been applied both in industry and geographical positioning of the markets so as to achieve as optimal as possible. The volatility in price and the volatility in the currency exchange rate of the various markets and financial instruments have also been considered. Highly performing instruments were selected and have been considered for this project. This include, the US Treasury bond, Municipal bond (US), Cooperate bond (US), Fortress bond (UK) and the Turkey treasury bond.

Claim on income and assets: preference share is a senior security as compared to ordinary share. It has a prior claim on the company’s income in the sense that the company must first pay preference share dividend before paying the ordinary dividend.