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
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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
a. The Yield to Maturity (YTM) is the nominal rate of return which investors would realize if they held the bond to maturity and the bond did not default.
Before moving forward to compute the present value of these cash flows, a terminal value is required to forecast the long term value of the company after 5 years. . Following formula is used to calculate the terminal value.
This solutions manual provides the answers to all the review questions and end-of-chapter problems in Financial Management: Principles and Practice, by Timothy Gallagher. The answers and the steps taken to obtain the answers are shown. Readers are reminded that in finance there is often more than one answer to a question or to a problem, depending on one‘s viewpoint and assumptions. One answer is
Justin Bell, assistant operations manager at Rockwater Insurance (RI), faces a difficult situation and must act quickly in order to prove his competence as a leader to his colleagues.
In August, the California Supreme Court issued a new ruling holding an insured can assign its right to coverage against third-party claims, even after the loss or injury has occurred, despite “consent to assignment” clauses.
Our approach to valuing the processing plant can easily be decomposed into three distinct steps first, find the value of the foreseeable free cash flows. Next, calculate the terminal value of the project. Finally, take the present value of those flows. The next few paragraphs walk through each of these steps in order of progression.
Insurers, insureds, and even their attorneys frequently incorrectly assume that insurance agents and brokers owe fiduciary duties to their insureds. While the law is not completely clear regarding the applicability of agency principles and their fiduciary duties in this area, legal precedent can offer some guidance on the issue.
iii. Prepare a basic discounted cash flow analysis; i.e. compute incremental cash flows and a terminal value, and discount them at a weighted average cost of capital. Can you do a multiples-type analysis here as well?
An investment firm with the name of J.D.Williams, Inc. helps many of its clients invest over $120 million for the last 40 years. We have many personal investors helping many individuals with their investments. We create personalized plans for our clients depending on their needs. Our company has multiple methods to help its clients with investments. We use many different approaches when it comes to assessing and making an appropriate plan for the investment.
This case raises many interesting questions concerning the record setting issuance of corporate debt by WorldCom, Inc. (“WorldCom”). Both the surprisingly voluminous structure of the proposed issuance and the foreboding macro-economic climate in which it was slated spark concerns over the risk and cost of the move. One of the first questions that must be addressed is whether WorldCom’s timing was appropriate. Next, the company’s choice of structure for the bond issuance must be analyzed. Finally, the cost of issuing each tranche of debt must be estimated in order to determine how much WorldCom is actually giving up to achieve the $6 billion in funds.
Pension funds are any plans, funds or schemes which provide retirement income. These funds are important to shareholders of listed and private companies and they are particularly important to the stock market which is dominated by large institutional investors. This essay discusses the idea of pension funds and the pension crises. It defines the issues of pension funds, talks about the various pensions, categorizes them, and discusses the pension crisis and its implications to the US in particular and to the world in general.
Assume that one of Philip’s clients is a married man, aged 36 with two young children, who wishes to reallocate a significant portion of his retirement funds that are currently invested in certificates of deposit. Philip recommends a growth investment, and he identifies the three representative possibilities shown in Table A.
The group project, Macmillan and Grunski Consulting, consists of two sections. The first part explains the case about discounted cash flow analysis, by answering the given nine questions. The second part discusses the retirement planning.
the pool; an investor in a covered bond had recourse to the issuer, as well as a claim that was secured