Investments Management - Bill Buys a $1000 Par Value 10-Year Bond for $850. It Pays $75 a Year in Interest. Calculate Bill’s Yield to Maturity on the Bond Using a Financial Calculator or Software

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INVESTMENTS MANAGEMENT

Q1) Suppose that there are two closed-end mutual funds, A and B. Both trade at $8, where the net asset value per share is $10. Fund A is a terminated fund. (A terminated fund is a fund with a termination date, the date at which the assets are liquidated and distributed to the shareholders. Its termination date is in 1 year from now. Fund B is not a terminated fund.

a. Calculate the premium or discount corresponding to these two funds.

b. Suppose that the net asset value of both funds will increase to $12 one year from now.

Calculate the rate of return to the investor in Fund A for this year. Can you calculate the rate

of return corresponding to Fund B under these circumstances?

Q2) An ADR of Honda Motor is traded on the NYSE for $22. The exchange rate is 100 yen per

dollar. Suppose that Honda Motor is trading in Japan for 2,500 yen. How can you use this

information to make a profit? Explain.

Q3) Suppose a bond is sold for $1,000 and pays an annual interest rate of 10% on the par value,

which is also $1,000. The bond was issued 20 years ago and will mature in one week. You own

some of these bonds. The yield on these bonds suddenly goes way up, to 15%. Calculate your

loss. Explain your results?

Q4) Suppose a bond has a par value of $1,000 and a market value of $1,100. It is convertible into 40

shares of stock, and the current stock price is $26.

a. What is the conversion ratio?

b. What is the conversion price?

c. What is the conversion value?

Q5) Suppose you buy a stock for $100. You receive $4 as a cash dividend at the end of the year. The stock price at the end of the year is $95.

a. What is the rate of return on your investment?

b. What is the dividend yield as measured at the beginning of the year? At the end of the year?

Q6) The net asset value of a mutual fund is...