Notes on Short-Term Trading Opportunity

727 Words Feb 5th, 2018 3 Pages
The basic trading principle here is bond trading. This is where the issuer acknowledges their indebtness to the holder. The certificate in this case is a formal contract that ensures repayment of borrowed money with interest at fixed intervals. In the case of Dave and Marlene Carter, their first contract involved a trading opportunity of buying a 7.5%, 25-year bond priced at $ 852 expected to yield 9%. These are securities where the bondholders have a credit stake in the issuing company.

2.If Marlene’s expectations are correct, what will the price of this bond be in two years?
The expected return of investing in the 25 year old bond priced at 852. By investing in this bond given at a rate of 7.5%, Marlene will realize a return on investments of about $137.42.

3.What is the expected return on this investment?
Investing in the 25-year bond at a return rate of 7.5% per year is valuable for Marlene in the short-term trading opportunity. If Marlene buys the 7.5%, 25-year bond currently priced at $852, she will receive a profit of $137.42 after the first 2 years. This bond’s investment return will rise in the following years until the 25-year maturity period. Investing in this bond has redemption amounts that lead to good performance of the bond by the holder. This is likely to result in Marlene receiving more investment returns than her original investment at maturity of…