Assume you are working with a portfolio management company; you have to educate some prospects because they are not convinced with some bonds suggested for investment by you, they have so many doubts about the rating of bonds. So how you can convince them that bond rating has a proper process by giving examples of some agencies and list of fixed income securities.
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- ETFs are the most popular investment instruments for individual and institutional investors. You are interviewing with a FinTech firm that creates bond ETFs. Make a pitch for how you will design Bond ETFs that offer something unique and that are able to stand out in the crowd given the proliferation of bonds ETFs in the market. Keep in mind that bond values depend on, (a) bond ratings, and (b) the macroeconomic environment. Also keep in mind the relation between the promised payments and interest-rate risk; indenture/structured provisions and agency theory; the concept of over and underpriced bonds; the concept of hidden risk; the importance of being able to predict the macro environment; and the importance of AI and ML in a robo-advising context.“Investing in bond is easy because investors can choose the bond based on the bond rating given by rating agencies.” Do you agree with the statement? Why?“Investing in bond is easy because investors can choose the bond based on the bond rating given by rating agencies.” Do you agree with the statement? Comment.
- ETFs are the most popular investment instruments for individual and institutional investors. You are interviewing with a FinTech firm that creates bond ETFs. Make a pitch for how you will design Bond ETFs that offer something unique and that are able to stand out in the crowd given the proliferation of bonds ETFs in the market. Keep in mind that bond values depend on (a) the promised payments (coupon and maturity), (b) indenture and structured provisions,Discuss how a bond laddering strategy might work (i.e., how it might be set up and maintained) for an investor who is seeking higher returns, but a higher degree of safety. Assume the investor is only willing to purchase bonds and has $100,000 to invest.Frank Meyers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investiment Committee, Fred Spice, is very interested in learning about the management of fixed-income portfolios. Spice has approached Meyers with several questions. Specifically, Spice would like to know how fixed-income managers position portfolios to capitalize on their expectations of future interest rates. Meyers decides to illustrate fixed-income trading strategies to Spice using a fixed-rate bond and note. Both bonds have samiannual coupon periods. Unless otherwise stated, all interest rate (yield curve) changes are parallel. The characteristic of these securities are shown in the following table. He also considers a nine-year floating-rate bond (floater) that pays a floating rate semiannually and is currently yielding 5%. Fixed-rate bond: price 107.18, YTM 5%, TMT (years) 18, modified duration (years) 6.9848. Fixed-rate note: price 100, YTM 5%, TMT (years) 8, modified duration…
- Sergei Leenid, CFA, is a long-only fi xed income portfolio manager for the Parliament Funds.He has developed a quantitative model, based on fi nancial statement data, to predict changesin the credit ratings assigned to corporate bond issues. Before applying the model, Leenid fi rstperforms a screening process to exclude bonds that fail to meet certain criteria relative to theircredit rating. Existing holdings that fail to pass the initial screen are individually reviewed forpotential disposition. Bonds that pass the screening process are evaluated using the quantitative model to identify potential rating changes.Leenid is concerned that a pending change in accounting rules could aff ect the results ofthe initial screening process. One current screen excludes bonds when the fi nancial leverage ratio (equity multiplier) exceeds a given level and/or the interest coverage ratio falls below a givenlevel for a given bond rating. For example, any “A” rated bond of a company with a fi nancial…Which of the following is FALSE regarding bonds? The yield to maturity is the return an investor would earn if she buys the bond at the current price and holds it to maturity, collecting all of the promised coupon payments and the par value at maturity bond holders vote to elect members to the board of directors a bond indenture includes all of the basic terms of a bond issue bondholders have legal recourse if a company fails to make the promised interest payments or the par value at maturity corporate bonds usually have a fixed coupon rate with semi-annual interest payments.Frank Meyers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investment Committee, Fred Spice, is very interested in learning about the management of fixed-income portfolios. Spice has approached Meyers with several questions.Meyers decides to illustrate fixed-income trading strategies to Spice using a fixed-rate bond and note. Both bonds have semiannual coupon periods. Unless otherwise stated, all interest rate changes are parallel. The characteristics of these securities are shown in the following table. He also considers a 9-year floating-rate bond (floater) that pays a floating rate semiannually and is currently yielding 5%. Characteristics of Fixed-Rate Bond and Fixed-Rate Note Fixed-Rate Bond Fixed-Rate Note Price 107.18 100.00 Yield to maturity 5.00% 5.00% Time to maturity (years) 18 8 Modified duration (years) 6.9848 3.5851 Spice asks Meyers to quantify price changes from changes in interest rates. To illustrate, Meyers…
- Your business associate mentions that she is considering investing in corporate bonds currently selling at a premium. She says that because the bonds are selling at a premium, they are highly valued and her investment will yield more than the going rate of return for the risk involved. Reply with a memorandum to confirm or correct your associate’s interpretation of premium bonds.Which of the following statements is correct about corporate bond/ A.The corporate bond with AAA rating has zero default risk.All else equal,the corporate bond with better credit rating has lower yield to maturity B.Corporate bonds bonds have zero default risk and fixed coupon payments C.The corporate bond credit risk is assessed by the credit rating agency D.Default risk referto the likelihood that firm will walk away from the its bond obligations involuntarilyTo understand how bonds work and how they are priced, we have to have an understanding of what determines a bond’s price. One of the most important factors to consider when pricing bonds is the prevailing market rate of interest for bonds of similar risk in terms of duration and quality. In your response to this question, you should highlight the relationship between bond prices and interest rates and indicate what risks are considered when we price bonds. Include at least two citations that support your response.