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,

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,

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles

Section: Chapter Questions

Problem 4Q

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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.
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.
Bonds and stocks are two primary securities traded on approximately all stock exchanges of the world because of their potential, reliability, and better trade volume. Besides all these pro, the risk-taking behavior of different investors and the features associated with each class of security are vital ones that attract investors for earning a handsome return. Stocks are considered riskier with a higher return, whereas bonds accounted for low-risk investment with a guaranteed return. However, most investors formulate a portfolio of their investment with a combination of bonds and stocks for optimal return with a lesser degree of risk due to the diversification edge involved in it.The formulation of such a portfolio lies in market factors and company-specific factors. The optimal return only can be achieved by a better judgment of both factors and evaluation of intrinsic prices of securities by some fundamental methodsA new investor wants to add bonds and shares to his portfolio and he…
Bonds and stocks are two primary securities traded on approximately all stock exchanges of the world because of their potential, reliability, and better trade volume. Besides all these pro, the risk-taking behavior of different investors and the features associated with each class of security are vital ones that attract investors for earning a handsome return. Stocks are considered riskier with a higher return, whereas bonds accounted for low-risk investment with a guaranteed return. However, most investors formulate a portfolio of their investment with a combination of bonds and stocks for optimal return with a lesser degree of risk due to the diversification edge involved in it. The formulation of such a portfolio lies in market factors and company-specific factors. The optimal return only can be achieved by a better judgment of both factors and evaluation of intrinsic prices of securities by some fundamental methods A new investor wants to add bonds and shares to his portfolio and…
The more attractive the call provisions on a bond to the issuer, the __________ the coupon rate on the bond. the stockholders exercise control over __________ affairs through their ability to elect the board of directors. The preferred shares are outstanding indefinitely unless the company chooses to __________ them. Venture capital companies make high risk investments in new companies hoping for __________ returns. A syndicate is a team of several investment banking firms that join forces for a short time to sell__________ securities. A market is weak-form efficient if current prices fully __________ all information about past prices. A market is semistrong form efficient if current prices fully reflect all __________ available information.
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…
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…
From an investment point of view, bonds are generally considered to be safer investments than stocks. They are generally low risk low return investments, unlike stocks. As an investor in bonds, you would lend money to the issuer of the bonds. It is important to understand what bonds are and how they work as investment vehicles. Suppose a friend of yours is looking to invest $5,000 such that it will provide current income and increase the diversification of his assets. He has heard a lot about corporate bonds but wants to learn more before purchasing them. Fill in the blanks in the following conversation to give your friend the appropriate information regarding corporate bonds. FRIEND: Can you explain to me the basics of how investing in a corporate bond will increase my current income? YOU: Under a standard bond agreement, if you were to purchase a 10-year, $5,000 corporate bond with a 9% coupon, you would receive _______________in interest each year, and at the end of…
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.
a. As an investment advisor, a client has approach you for a big-time investment looking for a diversified portfolio. Explain to him the basic steps or processes you will follow in order to achieve the best for the client b. Explain five kinds of risks that an investor in bond faces. c. Distinguish between the Price Effect and the Re-Investment Effect of interest rate changes on a bond portfolio and discuss three strategies for dealing with these effects.
True or False: Corporations are very interested in their potential bond rating as it impacts their cost of capital. The spread of a bond is common term used by investors. The spread of a bond is that additional compensation for the risk of a bond (relative to a risk free rate). The spread on Junk or High Yield Bonds is generally higher than the spread on bonds rated BBB or higher.
Explain the main characteristics of variable coupon and index-linked bonds. Discuss how they help to off-set some of the risks faced by investors in plain vanilla fixed interest securities. The discussion should include an assessment of the limitations of variable coupon and index-linked securities as assets offering protection against certain types of risk. The word count for this element should be 350-450 words