bond case mutual of seattle insurance company Essay

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Bond Case
Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Insurance Company and co-directors of the company’s pension fund management division. An important new client, The North-Western Municipal Alliance, has requested that Mutual of Seattle present an investment seminar to the mayors of the represented cities, and Strother and Tibbs, who will make the actual presentation, have asked you to help them by answering the following questions.
1) What are the key features of a bond?
2) What are call provisions and sinking fund provisions? Do these provisions make bonds more or less risky?
3) How does one determine the value of any asset whose value is based on expected future cash flows?
4) How is the value of a …show more content…

Nominal Yield (Coupon Rate). The interest rate defined on the coupon. This is generally the interest rate you receive if: you acquired the bond at par (that is, at neither a discount nor a premium to its par value) there is no call feature on the bond you don't reinvest coupon payments and, you are resolved to hold the bond until maturity. In reality, it is almost certainly not your actual interest rate. Current Yield. Factors in the bond's market price, which is generally not the same as par value. Yield to Maturity. Considers the current market price, the coupon rate and the time to maturity and assumes that interest payments are reinvested at the bond's coupon rate. This is the most accurate, and most widely quoted, measure of return on a

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