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In both cases, the bonds that were the most severely affected by the interest rate shocks were the longer-term maturities.
A g) Even Treasury bonds are risky, because short-term fluctuations in the interest rate can impact the value of the cash flows that they are to receive. The main difference between corporate bonds and Treasury bonds is that the latter are guaranteed by the government. Thus, they are considered risk free, in the sense that there is no default risk, only market risk. Corporate bonds, however, contain default risk. Therefore, it is important for the issuers of corporate bonds to understand that they must add in a risk premium to account for the default risk. The degree of default risk will be measured by bond rating agencies and that will determine the risk premium that the corporation must pay in order to raise funds in the bond market.
2. The…… [Read More]
Stocks and Bonds
eferences to the terms "stocks" and "bonds" are frequently heard in the mainstream media and throughout the investment literature, but the terms may not be completely understood by the general public. Therefore, making the distinction between the two financial instruments by providing current working definitions and typical examples of stocks and bonds is an important enterprise. To this end, this paper provides a review of the relevant literature to develop respective definitions and examples of the terms "stocks" and "bonds," followed by a summary of the research and significant findings in the conclusion.
In corporation law, the term "stock" is used in a variety of ways. For example, according to Black's Law Dictionary, "It may mean the capital or principal fund of a corporation formed by the contributions of subscribers or the sale of shares; aggregate of a certain number of shares severally owned by the members…… [Read More]
Regardless of one's appetite for risk, it is essential that some diversification of assets is used to prevent 'losing' money by saving money in a bank account alone, although noninsured investments should not be concentrated on one area of the economy, to protect against potential losses.
Even in today's economic climate, investors should allocate some of their funds in safe, but higher-interest bearing sources. These might include certificates of deposits or CDs, which can be allocated into different accounts so the CDs mature at different times, to free up more of the saver's money. These safer investments may also include government bonds of stable governments and corporations, as well as preferred stock for companies that offer this option. Unlike CDs less than $250,000 in value, however, bonds and preferred stocks are not insured by the government.
The concept of the future value of money underlines the importance of saving in…… [Read More]
Indian Stock and Bond Markets
Do you think an investment in the Indian stock market is a good long-term investment?
The Indian stock market has experienced a number of fluctuations over the past 20 years or so that would suggest that investors might want to adopt a "wait-and-see" approach before making the plunge into these financial waters. For example, Schmidt and Hersh emphasize that, "The history of the operation of the Indian stock market has been dotted with brokers often unable to meet their commitments, allegations and proved instances of insider trading, and deliberate manipulation of stock prices by bears and bulls" (2000, p. 131). The prices for stocks listed on the Indian stock have experienced a number of highs and lows, with the most significant boom taking place during the period 1993 to 1995; however, although there have been some spikes, there has been a downward trend experienced since…… [Read More]
For example, if the Fed sees inflation as a risk going forward, the market will place a weighting on that statement, allocating some form of increased interest rate to the future cash flows.
At the time of course, the exact implications of the Fed's comments are unknown. They imply that rates may move in one direction or another, but they are not an actual movement and the Fed reserves the right to change its mind before it meets again. The bond market is thus working with imperfect information. This can lead to general price movements but of unknown quantity. Over time, a reasonable correlation can be established, such as the elasticity of bond prices in relation to, for example, strong warnings from the Fed about inflation. Such a correlation can be drawn with a large enough sample size that it can be used in bond prices.
Overall, though, the exercise…… [Read More]
Raising Corporate Capital Issues
It appears fairly clear that the most advantageous means of raising capital for a corporation is to sell common stock. However, it is critical to realize that there are other things that a corporation must do in addition to selling common stock to make this method provide the degree of efficacy that the corporation desires. The reason that selling common stock can help to raise capital for the corporation is that it is possible to get many different people to invest in the company through this means. However, these individuals will tend to do so in greater numbers and in ways that continue to benefit the corporation if the company itself excels. Specifically, the company must simultaneously focus on its core business and keep abreast of its competition so that it can continue to generate revenue and, hopefully, provide the sort of profit margins that are…… [Read More]
50) to 2097 -- the price of this bond is of $58 (Yahoo Finance, 2009).
Despite their past low popularity, the investors are now beginning to seek more vividly the Ford preferred stock (F-PF) and this is generally explained by the fact that the popularity of the common stock has suffered demises. The company officials have decided to allow owners of common stocks to exchange them with preferred stocks and vice versa, in order to increase investor satisfaction. The preferred stock is being traded at a value of $38.86. Preferred stocks are among the riskiest investments and the specialized advice is that they be kept for long periods of time, but in small amounts. Additionally, it is necessary to diversify the portfolio and the preferred stock should not make up more than one percent (Neubert, 2007).
Neubert, D., 2007, Ford Preferred (F-PS): Used Only with Diversification, The Panelist, http://thepanelist.com/Neubert%27s_Trades/Neuberts_Trades/_20070805502/last…… [Read More]
Bond-buyers are also traditionally older and might have been more leery about investing in a new technology such as the Internet during the 1990s.
The choice of these companies to pay a higher rate of return to compensate for the greater risk would have defeated the purpose of the corporation issuing bonds in the first place, as what makes the issuing of bonds so attractive is that the interest rates on bonds that corporations must pay investors are traditionally lower than rates for most other types of borrowing ("How Corporations Raise Capital," U.S. Department of State, 2007). For young, untried companies like the Internet companies of the 1990s this would not necessarily be the case, thus it made more sense to generate revenue through issuing common stock, as if the company faltered for a time, this would not have to be repaid, and buyers of stock were the right, less-risk…… [Read More]
It is expected that the bond will mirror the performance of the S & P. 500. ("Transaction History," 2010)
November 24, 2010
On November 24th several more new purchases would take place to include: General Motors, erkshire Hathaway, the Fidelity Immediate Government Fund and the Strategic Advisors Income Fund.
General Motors was selected, because it could help to provide the portfolio with above average growth. The results were that that stock would see an increase of 1.4%. ("Transaction History," 2010)
erkshire Hathaway was purchased to provide the portfolio with stability and diversification. This investment is expected to outperform the major market averages. The results were up .96%.( "Transaction History," 2010)
The Fidelity Intermediate Government Fund was selected because of their focus on medium term Treasury investments. This is expected to underperform the market averages. The results were that the position declined by 2.55%. ("Transaction History," 2010)
The…… [Read More]
Such events are usually difficult, slow, and distasteful processes. Figuring out whether bond obligations are likely to be fulfilled by issuers is best left to bond investment specialists.
Securities pricing is the bond market is complex and different from the stock market. hile a firm usually has only one kind of common stock, it could have dozens or even hundreds of different outstanding bond obligations. Setting current bond prices is complex. Few individual investors have the required skill, knowledge, information, and experience to make such assessments.
For individual investors it is much more straightforward simply to hold bonds through a bond fund. Once a bond fund establishes its "style" for the type, maturity, and quality of bonds it will hold, it selects and purchases bonds with an eye toward maintaining that style. Maintaining targeted maturity is relatively straightforward. Determining investment quality is less straightforward, but bond mutual funds have analysts…… [Read More]
Since inception, the Amex Composite Index has shown an increase of 57.3%, as compared to the NASDAQ Composite's gain of 26.6%, the S&P 500's gain of 7.1%, and the NYSE composite's gain of 14.3% (American Stock Exchange).
Values and volumes of stocks and options at the AMEX are significant. Closing values as of 10/11/2004 at 5:07 PM ET show significant activity. As of this date, the total volume was 44,288,030, with 1,359 block trades. Total options volume was 576,653, and bond volume was 102,000 (American Stock Exchange).
Like other stock exchanges, the AMEX is run by a number of officials. Officers of the AMEX include Chairman and Chief Executive Officer SALVATOE F. SODANO, the President Peter Quick, Executive Vice President alph . afaniello, and Chief Financial Officer and Controller MICHAEL T. D'EMIC. The AMEX also has a Board of Governors, trustees, a nominating committee, exchange officials, floor officials and a…… [Read More]
The market for bonds is not always liquid, but the same bond should buy/sell at the same price, if at the same time. If not, this will create an arbitrage opportunity and that arbitrage will align the prices on the different markets where the bond was priced differently. However, at different times, the price can change, based on the underlying factors that affect bond prices (Feldhutter, 2012). One such factor is time. Each bond has a time value, which represents the present value of the future cash flows, and the risk that interest rates will change in that time. Thus, the same bond will see its price change, the closer it gets to maturity, even when the only thing that has changed is the time.
Other changes will also affect bond prices. A change in interest rates will affect the opportunity cost of owning a given bond, leading…… [Read More]
Apple: Borrower Analysis
The size of the loan that Apple (AAPL) is procuring is $6.5 billion dollars in corporate bonds (Colt, 2015) with the intention of raising another $1.6 billion through the sale of Australian currency bonds in the form of seven-year notes (Purvis, 2015). The intention of the loan is to lift share holder value through the increase of dividend payments while avoiding hefty tax payments by repatriating its stockpile of cash ($145 billion to be exact) held in offshore accounts (Ehrman, 2013).
Thus, this transaction is useful to Apple because it allows the company to maintain its significant cash reserves and to boost its stock price by giving investors greater incentive to buy. Some critics might argue that the loan does nothing to really boost the company's fundamentals (in terms of development projects) but in an age where fundamentals are increasingly insignificant (which is what happens when QE…… [Read More]
When the market crashes, turns bearish, or severely corrects, investors not only lose objective things such as money, they also lose the sustaining functions of which the investing process (and/or money, which may psychologically represent self-esteem, independence, power, etc.) has been the source. That means, in addition to objectively not having the money to buy that new house or car, self-esteem drops, and the investors capacity to calm themselves down is diminished, motivation wanes, confidence is shaken, and vitality ebbs. A down market represents an injury to our total sense of self and all the functions that sustain it. In a general way it represents a hope or fantasy lost.
For the young investor, with a large amount of earning power remaining in his life, the ups and downs of the market are small obstacles to the long-term objective of amassing a financial nest egg on which to…… [Read More]
Question 1.a) Bond ratings encompass a wide range of elements related to the credit risk of the firm. Moody's notes that bond ratings include elements of default probability, loss severity, "financial strength" and "transition risk" (Cantor & Fons, 1999). The authors note that within the same sector, bonds of the same rating tend to be comparable both with respect to overall credit quality and specific credit quality characteristics. Over different segments of the bond market, this is not necessarily the case. Bond ratings tend to take in factors like the balance sheet strength of the firm, as well as the expected loss in the event of a default. Thus, the type of assets that the firm holds is an important characteristic. The transition risk reflects the likelihood that the firm will experience outright default without transitioning down through the different risk categories. Firms that are almost assuredly going to…… [Read More]
Stocks and Bonds Basics
There are a number of different types of bonds that are existent. These bonds are typically redeemable in different ways and for different types of value. For instance, a convertible bond is the type that one can redeem for stock options at various prices (Yamam, 2014, p. 63). The number of stock options for which it can be redeemed varies, which affects the valuation of the bond. Another type of bond is a pure discount bond, which must mature before it can be redeemed for cash. Once such a bond does mature, however, it is always redeemable for its face value -- which certainly contributes to the factors for the valuation of this variety of bond. Other types of bonds include a callable bond. This bond enables the entity that has disseminated the bond to buy it back. However, the bond issuer can only repurchase this…… [Read More]
Portfolio Management Project
Selected 10 companies
purchase date purchase price
Industry/Sector: Technology/Personal Computer -- Investment Style: Large Growth
Communications Systems Inc.
Industry/Sector: Technology/Data Storage -- Investment Style: Small Growth
Joy Global Inc.
Industry/Sector: Farm/Const/Mach -- Investment Style: Large Growth
Industry/Sector: Consumer Services -- Investment Style: International
Industry/Sector: Steal & Iron -- Investment Style: International
Aereas Inteligentes SA
Industry/Sector: egional Airline -- Investment Style: International
Coffee oasters Inc.
Industry/Sector: Processed Pkgd gds -- Investment Style: Small Growth
io Tinto PLC
10/21 / 2009
Industry/Sector: Steal & Iron -- Investment Style: International
Industry/Sector: Steal & Iron -- Investment Style: International
Industry/Sector: estaurants -- Investment Style: Small Growth
Investing today is about taking advantage of growth from a broader…… [Read More]
(Dow Jones and Company, 2009). The DJIA can be used in three principal ways: as a yardstick, as a barometer, or as an investment.
When the DJIA is used as a yardstick, the goal is to measure performance from one period of time to another:
The most common use of an index by investors is to evaluate the performance of their own portfolios on a monthly or quarterly basis. This is the "benchmark" function of an index, and it constitutes the bogey that many investors try to beat with individual stock picks or with mutual funds. There is no official benchmark for the stock market. Each investor chooses his or her own. The only logical requirement is that the benchmark chosen should represent the part of the stock market that is targeted by the investor's portfolio. For example, if the investor dabbles in large stocks from a variety of industries,…… [Read More]
Stock exchange: An exchange where shares of stock and common stock are sold and purchased. Common exchanges are the New York Stock Exchange and American Stock Exchange.
Secured bonds: A secured bond is a bond issued with the backing of collateral. A common example of a secured bond would be a mortgage bond. If the bond is defaulted on, the title of the collateral is transferred to the bondholder.
Factoring: Factoring occurs when a company sells their accounts receivable, or customer's debt, to another entity at a discount. The entity then assumes all credit risk of the account debtors, and receives the cash as these debts are settled. This process is also known as accounts receivable financing.
Trade credit: Trade credit refers to a company's open account arrangement with vendors. As the company makes purchases, the vendor debits the company's account, and bills them for this credit transaction.
Commercial paper:…… [Read More]
Annie's Investment In Atelier's Bonds
Call price =$1,080
Call price = Face value+ interest (Extra payment to the bond holder)
Interest Income = Call Price - Face Value = $1,080 - $1,000 = $
After 5 years, Stock price = $ (30 x 50) = $1,500 If she sells the stock at the end of the 5 the year, then she will get income from sale of Stock = $ (1500-1000) = $500. Therefore, at the end of 5th year, Stock price will be greater than the Call Price and as such, the can convert the bonds into common stock.
Converting the bonds is a safe option for Annie since common stock is a safe, income-producing alternative to bonds. While convertible bonds give up some of the upside of a stock, the dividend component and the reduced volatility make them attractive investments for retirement accounts and accounts with a need…… [Read More]
Components of a stock's realized return are distributions, dividends, bonds, and share price appreciation. Some kinds of stocks also offer income tax write-offs.
The characteristics of a realized return, in short, are the quantity of actual gains that is made on the value of a portfolio over a specific period of time. In other words, how much value one has received in terms of returns / gains as demonstrated in one's portfolio as a whole.
The realized return considers the profitable returns of the each of the assets contained in one's portfolios as well as each of the losses of particular assets incurred during that specific period, as a result of flucturtaitons that occurred to the market of particular assets. These are the components of each of the realized returns associated with each individual asset that is held in the portfolio.
Calculating the rate of return would enable the investor…… [Read More]
One of the most significant factors in the decision to invest in ICICI Bank is to determine the affects of recent capital expenditure and the anticipated return for these investments. Entry into microfinancing represents a considerable amount to risk, due to the financial instability of the target market. The following chart highlights the most significant changes affecting the financial health of ICICI bank that result from expenditures associated with entry into the rural finance venture. It compares key indicators and explains the effects of ICICI's most recent changes to their banking strategy.
Income Statement for years 2003-2006 (in millions USD)
Cost of evenue
Balance Sheet for years 2003-2006 (in millions USD)
Cash Flow for years 2003-2006 (in millions USD)
Net Cash Flows Investing
Net Cash Flows Financing
Net Cash Flow
Data Source: Nasdaq.com (2007).
The income…… [Read More]
U.S. Bond Market
I agree with Standard & Poor's (S&P) downgrade of the U.S.'s credit rating. It was motivated by the fact that Congress and the Obama Administration had been unable to come up with a budget or fiscal plan that would stabilize the nation's medium-term debt dynamics. Furthermore, they cited serious problems with U.S. monetary and fiscal policy, which they felt left the United States very vulnerable in a time of high-volatility in the global financial markets (Paletta & Phillips, 2011). In other words, S&P was looking at the federal government's failure to come together and address the serious financial problems facing the nation and anticipating that this failure would lead to some type of gridlock. In hindsight, the nation has experienced exactly that type of predicted financial gridlock. The country is in significant debt and one party is opposed to raising taxes on those who can most afford…… [Read More]
Billy Bob bought 100 shares of Stock in Ben's Barbeque, Inc. For $37.50 per share. He sold them in January, 2004 for a total of $9,715.02. What is Billy Bob's annual rate of return?
Since Billy Bob held the investment for 54 years, the annual rate of return is best calculated using the compound rate of return formula:
(Future Value / Present Value) ^ (1 / n) -- 1, where n = number of years.
Filling the data into the above formula:
Billy Bob's return on his investment in Ben's Barbeque is 1.78% per year.
Yellow Fruit Company's bonds are currently selling for $1,157.75 per $1,000 par-value bond. The bonds have a 10% coupon rate and will mature in 10 years. What is the approximate yield to maturity of the bonds?
Using the following formula:
c (1 + r)-1 + c (1 + r)-2 + . . . +…… [Read More]
Domestic debt is also needed for monetary policy purposes including for sterilizing inflows of foreign exchange." (Kahn, 2005) In addition bond markets assist in the provision of interest rates across the maturity spectrum and more efficient pricing of risk. y providing an alternative source of financing they reduce concentration of intermediation in banks. ecause lending can be hedged in the bond market, banks have the ability to lend longer." (Kahn, 2005) Kahn notes that PECC (2004) states general requirements for bond market development which include: (1) the simultaneous development of market width, market depth and market infrastructure; (2) effective coordination among government agencies; (3) close public-private sector partnership; and (4) regulation focusing on maintaining and enhancing transparency and the treatment of taxation. (Kahn, 2005) Kahn concludes by stating that if bond markets are to be development in SSA or in other emerging markets, the role of the state becomes critical,…… [Read More]
Persistent Technicals Inc. (PTI) established in 1985, is a fast-growing dominant leader in system automation that specializes in the BOT (Build-Operate-Transfer) methodology suited primarily for the municipal industry. With over 7,000 jobs, in its almost three decades of operations and experience, PTI commands a domineering presence in the industry it operates. Its business acumen, technological expertise, range of sactivity and financials are much better than most of the other companies that compete in the industry.
Engineering services provided by PTI include process information management, distributed control systems (DCS), programmable logic controllers and SCADA, project management, along with human machine interface (HMI), power monitoring,, the design and programming of remote telemetry, instrumentation, variable speed drives, motor and motion control, temperature control, and. It also provides for installation, commissioning and training, Custom panel fabrication, and technical on-site services.
The company has good insight of smaller third-party collaborations whose help is…… [Read More]
Walt Disney Prospectus
#1 Disney offered a five-year bond at 4.5% for sale. These are classed as Global Notes and they were available in denominations of $2,000 minimum and $1,000 after the first $2,000. The notes cannot be redeemed prior to maturity, but the company can redeem at any time at fair value. These are fixed rate notes at 4.5% and they will be paid out semi-annually. The global notes means that they are cleared both in the United States and in Luxembourg, allowing the company to tap the European financial markets. One of the main underwriters, Deutsche Bank, is partly responsible for the European part of the issue. The debt is, however, wholly denominated in US dollars.
There are several steps that Disney undertook in order to enhance the marketability of the debt securities. First, the price and conditions of the issue need to be favorable for the market…… [Read More]
Brazilian tock Market's operation and its strategy for expansion.
Use eight sources of information.
The BOVEPA plays an integral role in the economics of Brazil and the Latin American stock market system.
Brazilian tock Market
The Brazilian tock Market, better known as BOVEPA, the an Paulo tock Exchange was originally founded in 1890 and since then has provided services to the financial market and the Brazilian economy. Initially, BOVEPA and the other Brazilian exchanges came under the state government.
However, all that changed in 1965, when the Brazilian financial system and the capital markets became non-profit self-regulating institutions. The 1960 led to changes in the BOVEPA that has improved the quality of service and upgraded the technology platform making it more user friendly for investors.
The BOVEPA also implemented automated trading software using real-time trades via a computer network. This was an instrumental factor in introducing the options market…… [Read More]
Treasury Securities and Business isks
What is meant by "risk-free?"
isks are unplanned occurrences that affect the normal occurrences within a business or any other project. A risk-free scenario is anything that occurs without the possible occurrences of risks. Therefore, in an economic undertaking, risks are occurrences that occur contrary to the planned business or economic programs (Garbade, 2012). Thus, a risk-free status refers to a business occurrence where the established safety measures work towards alleviating the possibility of risk occurrences. Everything that is done incorporates many risks in place. isks occur within a specified framework of work that is contrary and unplanned within an economic setup. As much as risks are founded within any business, businesses will resort to possible avenues where they are not going to encounter or meet any possible risks that will work against their business strategies and plans. In a free rate of business, a…… [Read More]
Equities and Energy Options
The trades executed are for long MSFT, short AAPL in tech; long XOM and short CHK in energy. These trades are based on both sector sentiment and fundamentals. MSFT appears to be in an outperform trend while AAPL is poised to underperformed following poor sales data in China, slowing down of growth.
In energy, the price of oil is a big factor in any stock's performance and with crude hitting a ceiling at $50, it will not be good for companies like CHK which are overwhelmed by debt and need oil prices to be higher in order to maintain any kind of leverage. XOM on the other hand is in an outperform trend which looks to continue as it nears a deal with Russia to deliver gas to China and as the company continues to invest along these lines, giving it an outlet should oil prices…… [Read More]
alternative investment vehicles have been using by the investors to reduce the risk and maximize the profit. In this paper, we will discuss alternative investments opportunities and reducing the risk of portfolio by using the stock index future. Buying or selling the stocks is highly risky because of weak economic conditions. Investors should include various types of assets in the portfolio so that portfolio will not suffer the impact of a decline of any one security. For example; if an investor uses stocks and bonds in his/her portfolio, if stock price decline due to market fall then, the bonds would get higher return and it will eliminate the risk of decline. In the portfolio management it says that "not putting all eggs in one basket," it means investor should not invest in only one asset; they should construct the portfolio containing various types of assets. Thus, the portfolio must be…… [Read More]
After the economic Collapse, precious metals like Gold and Silver have become the safe heaven investment for the investors. Investors know that they will get a high return by investing in these precious metals. The performance of the Gold can be judged from the below mentioned Gold graph.
The red line indicated that the Gold has completed almost a 100% ride in just 3 years because of the intentions of the people to get out their money from other investment option and park in the precious metals. There are risk provisions attached with the investment in these precious metals. Actually the price of the precious metals has been overbought now after the factor of safe heaven investment associated with it. Cautious must be taken by the investors while taking a buying position in the precious metal's investment. Tool like performance indicator of the precious metal will be used by the…… [Read More]
Theory (MPT) and its role in asset allocation and diversification. The paper reviews arguments in favor of and against MPT, in addition to reviewing how MPT affects portfolio management.
MPT describes a theory on how risk-averse investors can build portfolios that optimize or maximize expected return based on a given level of market risk, while emphasizing that risk is an inherent factor of higher reward. MPT posits that it is possible to construct an "efficient frontier" of optimal portfolios that offer the maximum possible expected return for a given level of risk (Modern portfolio theory, 2011).
Modern Portfolio Theory
Typically, an investor looking for the ideal investment, would choose one whose attributes included high returns coupled with low risk. The ideal investment probably does not exist, but the search for it has caused financial managers and investment analysts to spend time to develop methods and strategies, many of which are…… [Read More]
pay back period" is the length of time that is required to cover the cost of an investment. I would use this in order to make a good financial decision.
The calculation that I would do is as follows:
For instance, if a project costs $100,000 and is expected to return $20,000 annually, the payback period will be $100,000 / $20,000, or, in other words, $20 per 5 years.
The better investment is the one that has the shorter pay back period.(Investopeida)
Another tool that I would use to measure the time value of money to assess long-term projects is Net present value (NPV). Businesses use it to measure the value of a time series of cash flows both incoming and outgoing. For instance, when all types of cash flows are incoming (such as bonds or coupons), and the only cash outflow is the purchase price, the NPV…… [Read More]
Advice (SOA): Financial Planning
Purpose of this document is to prepare a statement of advice (SOA) on the financial planning for David Smith and Brenda Smith to achieve their financial goals. The advice is to communicate important information to clients in order to make informed decision about their financial portfolios. This document is a Statement of Advice or 'SOA' used to explain my advice, and highlights the important points. Please, be sure to read all sections of the SOA.
Summary of my Advice
I recommend that you sell your shares and reinvest the funds in the managed funds, which will assist you to get a return between $17,000 and $29,000 a year. Moreover, I recommend that you invest 60% of your superannuation in the managed funds. I carefully choose the categories of the managed funds that you could invest your money. Based on my recommendation, you are likely to get…… [Read More]
financial derivatives? What are they used for? Types of derivatives. Types of derivatives markets (where are they negotiated).
What are financial derivatives?
Financial derivatives are essentially a financial contract between two people or two entities that depends on the fulfillment of an economic asset in the future, such as a stock, a bond, commodity, or a currency. The two parties make agreements between each other to ensure that all aspects of it will be covered and work in a specific way by a certain date. Financial derivatives, by the way, are called so since the term 'derivative' denotes that their value 'derives' from underlying assets like stocks, bonds and commodities. These financial derivatives can range from something as simple as a private agreement to something that is controlled by rules and restrictions.
Different types of derivatives
There are various derivatives that meet different needs.
Some of these derivatives are the…… [Read More]
However, the coverage of credit ratings in Europe is being considered to a certain extent to be under developed in comparison to that of the United States as a result of the greater enhanced dependence upon bank intermediation. The rating penetration was even found to be quite different even within the quarters of the European Union as a result of the increased prevalence of the different types of financial structures with more or less financial disintermediation. The continuing internationalization / Europeanization of the level of fixed income portfolios however, are being expected to remain as a strong element of demand for the purpose of ratings in the European bond market. Besides, the ratings are also being required by the different regulators in the various areas. Presently, however, the new market-based methods for the purpose of evaluating credit risks have been derived from that of the equity prices, subordinated bond prices…… [Read More]
hat is AI?
Future of AI
The Expert System
hat is an Expert System?
Three Major Components of an Expert System
Structure of an Expert System
Field and Benefit
Debate on Comparison
Artificial Intelligence (AI) and the Expert System Defined
Consulting applies a knowledge-based system to commercial loan officers using multimedia (Hedburg 121). Their system requires a fast IBM desktop computer. Other systems may require even more horsepower by using exotic computers or workstations. The software used is even more exotic. Considering there are very few applications that are pre-written using AI, each company has to write it's own software to determine the solution to their specific problem.
An easier way around this obstacle is to design an add-on. The company Fuziare has developed several applications which act as additions to larger applications. FuziCalc, FuziQuote, FuziCell, FuziChoice, and FuziCost are all products…… [Read More]
C. with interest 4 1/2 per cent.
To further arouse compassion, he includes the personal detail about his parents:
"I owe $3,500 to my parents and the interest on that loan which I pay regularly, because it's the part of the savings they made through the years they were working so hard, I pay regularly 4 per cent interest."
. He calls himself "a man of modest means" adding that Abraham Lincoln said: "God must have loved the common people -- "he made so many of them." Nixon, inother words, refers to himself as a 'common'man.
In Paragraph 4, he abuses his opponent commiting the as hominem fallacy i.e. attemtpting to negate the truth of a claim by pointing out negative characteristics or beliefs of the person supporting it.
And now I'm going to suggest some courses of conduct. First of all, you have read in the papers about other…… [Read More]
financial assets in order to recommend the appropriate investment vehicle for the client. Analysis of different investment vehicles shows that ETFs are the best investment option for our clients. The ETFs are the basket of securities that combine stocks, bonds, cash, commodities and other securities. The report diversifies our investment options choosing the stocks, bonds and cash from different industries. Based on the historical data, our average annual returns are 38% revealing EU 32,997 as our annual returns from our initial investment capital of EU 100,000. After 3 years, the net worth of our investor will be EU 457,901, which include the cumulative returns and the capital. However, the net worth of our investor will be EU 5.38 Million after 10 years. The report also carries out the sensitive analysis on the investment option assuming that our investment choice is affected by the macroeconomic forces. The report reduces our annual…… [Read More]
Accounting -- financing a start up company with either stocks or bonds?
hen seeking financing for a new company, two potential ways of financing the company are to issue stocks to shareholders that desire an interest in the fate of the company, or to sell bonds to individuals who wish to make money off of the interest of such bonds. Common stock options mean that the individuals who buy such stock become shareholders in the new company. Shareholders, as partial owners, have a right to vote for the company's board of directors. Such stockholders have an interest in the profits made by the company because they share in profits in proportion to the number of shares they own.
Of course, a new company could sell a large proportion of stock to finance its operations -- but individuals might not want to take such a risk, as if the company does…… [Read More]
As a small business owner determine the financial ratios that are important to the business, and compare them with those that are important to a manager of a larger corporation.
For a small business, the most important financial ratios are those in the profitability and efficiency classes. These include profit margin, return on assets, asset turnover, and fixed asset turnover. For the most part, small businesses are able to be more efficient and have higher profitability ratios than larger companies (Upneja, Kim, & Singh, 2000, p.28). Small businesses would be especially concerned with profit margin and return on assets, while a larger corporation would focus more on earnings per share and return on equity, which are concerned with shareholder equity, something that does not concern many small businesses.
Small business owners would also be interested in the liquidity ratios that measure the cash available to pay off debt,…… [Read More]
Calculate Touring Enterprises' weighted average cost of capital (WACC).
Work as follows: first, compute the after-tax cost of debt, then compute the cost of equity.
WACC = E/V x Re + D/V x Rd x (1 - Tc)
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D = firm value
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
Cost of equity 5%
Cost of debt 10%
Total Equity- 7 million
Total debt- 18 million
Total 25 million
Determine the weightings of debt and equity in the capital structure.
Equity -28% (7 divided by 25)
Using your answers to the above questions, calculate the WACC
WACC = E/V x Re + D/V x Rd…… [Read More]
How important is it for you to diversify your investment portfolio? How would you diversify your investment portfolio?
Although 'the stock market' is often spoken of as a collective entity, in reality it is made up of a many different types of industry subsets. Furthermore, stocks are not the only assets investors should have: bonds, CDs, and more conservative and risky investments make up the full 'buffet' of available ways to allocate funds. The right 'menu' of investments will vary depending upon the investor's age, comfort with risk, goals, and other factors. "To build a diversified portfolio, an investor should look for assets whose returns haven't historically moved in the same direction, and, ideally, assets whose returns move in the opposite direction. This way, even if a portion of your portfolio is declining, the rest of your portfolio is designed to be growing. Thus, you can potentially offset the…… [Read More]
The investors have responsibility to invest based on the social needs. The retail investor, can for example is thus a person who buys socially responsible unit trusts or mutual funds. Actually the investment that is being touted as responsible investment is the work of socially beneficial institution like pension funds, and some charitable foundations. Normally the institutional investors do not enter the socially responsible investment scenario. Of late however the new approaches to fund investment by the institutions have bordered on social concerns. The issues of institutional investment are more complicated and diverse than the retail funds. (Sparkes, 2002, p. 117)
There are many other investment opportunities available to the retail investor without incurring the risk but at the same time gaining efficiency in value without hedging. The retail investors thus are better off in those segments and hedging must not be opened to them. There are ample other investment…… [Read More]
It becomes more and more likely that by the middle of this century, all those hard-earned dollars that today's twenty- and thirty-year-olds have paid into Social Security will simply not be there.
Privatizing social security ensures the post-baby boomers that their money will be there for them when they retire. It takes the control out of the government's hands, which has notoriously not been the best financial advisor in history, and places in the hands of the individuals who earned it. In addition, eventually, it will reduce the expenses of the Social Security Administration as more and more workers no longer have to rely on the system. In addition, it puts money into the U.S. economy, not sitting stagnant in the U.S. treasury.
Disadvantages of President Bush's Plan:
Both aspberry (2005) and Weisman and White (2005) see one major flaw in the President's plan. The future scenarios that lead to…… [Read More]
Shareholder Capitalism as a Model for Economic Development
The idea that shareholder capitalism may serve as a powerful type of economic progression model has been made practical with the growth of credit along with a large marginal tax that delivers a security net for Americans, but additionally has its own limits.
Shareholder capitalism, and also the American structure of corporate governance which can serve as its main-operating-system, continues to be held out like a replica of economic growth and development for up and coming markets within the last era. This document reveals the roots of the model inside the U.S. And argues that this model has already established, in the best scenario, mixed success beyond the U.S. borders. Furthermore, the after-effects in the two financial bubbles in the early Twenty-first century shows that shareholder capitalism might not function as publicized even inside the U.S. During the economic crisis, sensible policymakers…… [Read More]
Islamic Bonds: Sukuk and the World of Finance
Stocks and bonds are among some of the most common ways of investing and raising capital in the financial markets today. Investors in the international arena are presented with a myriad of choices in terms of bond types. One of these is a relatively recent bond market that has emerged from the Islamic community, known as "Sukuk." This term is used to describe Islamic bonds. This type of bond distinguishes itself from its Western counterpart by its adherence to Shari'ah principles, one of which is the prohibition on charging or paying interest (Islamic Development Bank, 2010). This is accomplished by granting the investor a share of the investment asset, with its cash flows and risk. The growth and success of the Sukuk market has been remarkable, in that it caters to an investor market that seeks to diversify its holdings beyond the…… [Read More]
Berkshire Hathaway is one of the most interesting cases of successful investments. Under the inspirational leadership of Warren Buffett, the company's evolution is a great object of study for both scholars and investors. This paper aims at pointing out the key points in Berkshire's history, Buffett's influence, how the company's structure was built, what is its current financial status and whether an investor should consider buying its stock.
In a 1999 article from Business Week, Warren Buffett, the force behind the Berkshire Hathaway Business, was described as follows: "If Buffett had a business card, it would identify him as chairman and chief executive of Berkshire Hathaway Inc. But he is far better known -- indeed, world-famous -- as the greatest stock market investor of modern times. The figures, though often cited, still astound: Had you put $10,000 into Berkshire when Buffett bought control of it in 1965, you'd have $51…… [Read More]
Removing losses from the company's books made the main corporation look more attractive. Enron appeared to be operating at a profit; a key factor in the valuation of any company's stock. By virtue of this "success," Enron was able to raise even more money for more investments.
The architects of all this "growth" profited accordingly. Ken Lay and his associates held large amounts of exceedingly valuable and overvalued stock. hen Enron's cheating was finally exposed, it became painfully apparent to what extent Ken Lay, Jeff Skilling, and other Enron executives had been making vast sums of money on the backs of gullible workforce, and a gullible public:
The "Enron Nine" (if we may call them that) are J.P. Morgan Chase, Citigroup, Credit Suisse First Boston, Canadian Imperial Bank of Commerce, Bank of America, Merrill Lynch, Barclays, Deutsche Bank and Lehman Brothers. These financial institutions collaborated with the now-bankrupt energy company…… [Read More]
Businesses are the cornerstone of a capitalistic society. Businesses often drive economic growth and overall societal prosperity. In many instances, business can enhance the overall quality of life of those living in civilization. Looking back briefly at history, provides a unique perspective of business as it relates to societal development. Currently, looking at a minimum wage individual living in America today, they are able to perform tasks and activities that many of the wealthiest individuals in society during 1900 could only dream of. The minimum wage individual can watch television, listen to music on a cell phone, use the internet and even control the weather within their vehicle. This has occurred primarily due to the profit incentive embedded in a capitalistic society. The same will occur with Alex, Bill, Carl, Devon, and Xavier as there farm business developments. These same principles are present for all Christians who want their business…… [Read More]
Derivatives in Risk Management
One of the uses for derivative products is in risk management. Organizations have recognized that derivatives can be used to manage risk by offering guaranteed outcomes for a set up-front cost. For firms that face risk due to fluctuations in asset prices -- typically commodities or currencies -- beyond their control, derivatives represent a means of achieving cash flow certainty, if not profit certainty. This paper will explore the different forms that derivatives take, and the different ways in which they are used as a risk management tool. Some recommendation will be given with respect to the use of derivatives in risk management in order to optimize results.
Derivatives and Risk Management
In finance, a derivative instrument is one that has a price that is based on the price of a real underlying asset -- agricultural commodities, metals, sources of energy, currencies, stocks and bonds (Chance…… [Read More]
Prior to the corporate financial scandal, WorldCom was one of the largest long distance telephone companies (euters, 2003). Initially headquartered in Mississippi it later moved to Virginia. The company grew fast by acquiring other companies such as MCI Communications in 1998 and UUNET technology in 1996. Other companies acquired included, Metromedia in 1992, esurgens Communications Group in 1993. In the course of this acquisition spree, WorldCom undertook two complex takeovers. The first was the 1998 acquisition of CompuServe from H& Block where it retained the network division, sold off the online service to American Online (AOL) and the second, the acquisition of Digex in 2001, and disposed of all Digex assets to Allegiance Telecom (Kaplan & Kiron, 2004). With these acquisitions, it gained a favorable reputation in the market as a company with a solid foundation.
Facts of the WorldCom Case
The WorldCom fraud case is one of the…… [Read More]
According to the United States' Government's Medicare program, coverage of nursing home care is offered only on a limited basis. In order to be eligible, the Medicare must only receive services from a Medicare-approved facility, and must have a "qualifying hospital stay" just before entering the nursing home; this stay is generally three days or longer ("Nursing Homes: Paying for Care").
In light of these potential medical costs, one must be careful when advising this couple. The goal of retirement is to allow them to maintain their quality of life, but their quality of life is not maintained if they are constantly sick or worrying about their health. The father's skepticism about taking out a policy that would cover nursing homes or home nursing services is warranted. First of all, no one wants to think about the time when they will no longer be able to take care of him…… [Read More]
Spillover Effect on the Stock Market and Bond Prices in Relation with GARCH
This study examines the spillover effect between bond and stock markets in the U.S. using GARCH. The finding of a unidirectional spillover flow from bonds to stocks in the U.S. is discussed in the light of new marketplace variables that have been introduced into the markets in the previous decade. These variables include the rise of HFT, algorithm-driven trading, and central banking interventionism via unconventional monetary policy. The effect on forecasting volatility, price and return of asset classes, studied through the lens of other commodity price movement and volatility—such as oil and gold markets—creates a compelling picture for why GARCH models may need to be reworked to incorporate new data regarding the new ways in which the 21st century marketplace is using technology and central bank interventionism to shape market movements and market outcomes.
Table…… [Read More]
2.3: Theme I: This study's first theme defines hedge funds and presents a synopsis of their history.
2.: Theme 2: Ways hedge funds compare to mutual funds are noted in this section, this study's second theme.
2.5: Theme 3: segment denotes techniques hedge funds utilise in investing.
2.6: Theme : A number of ways rising and falling markets impact hedge funds, this section's theme links to the thesis statement for this thesis/Capstone.
2.7: Analysis: The analysis section presents a number of pertinent points retrieved from the reviewed literature.
CHAPTER III: DISCUSSION; CONCLUSIONS; RECOMMENDATIONS
3.1: Introduction: This final chapter's introduction reviews the original study aim and objectives presented at the start of this thesis/Capstone, relating to hedge funds techniques. This section also recounts this study's thesis statement.
3.2: Discussion: During this segment, this researcher relates final considerations regarding hedge funds techniques, cross-referencing several points the reviewed literature noted. This researcher also…… [Read More]
One financial writer for Money
magazine recently told readers "you couldn't help but marvel at how much
brighter the economic future looked beyond our shores" (Lim, 2008, pg.
109). Huge amounts of money flowed from the United States to what were
supposedly safer havens. As Lim states in the same article, "As the
financial crisis spreads abroad, it's clear that foreign stocks haven't
saved your portfolio" (Lim, pg. 108).
As mentioned above, mutual funds sometimes invest in bonds. Bonds are
different from stocks in that the investor in bonds does not own a share of
the company, instead the company or institution is borrowing money from the
investor with the promise to pay it back at a certain time with
accumulated, or paid out dividends. Bonds are not normally as volatile as
stocks, and therefore this investment does not normally have the capability
of providing as high a return as…… [Read More]
Sources of Funds
What are the best sources of raising funds that the financial managers of the Nike Inc. can use? Why?
In contrast to smaller entities, larger corporations often have far more available sources of revenue from which to raise capital. Instead of borrowing from the bank, seeking angel investors, or asking for help from friends and families, corporations can sell bonds: a "bond is a written promise to pay back a specific amount of money at a certain date or dates in the future. In the interim, bondholders receive interest payments at fixed rates on specified dates. Holders can sell bonds to someone else before they are due" (How corporations raise capital, 2013, U.S. Department of State). Many investors prefer bonds because of the greater security they offer as investments, even though the rate of return is lower.
Unlike stocks, if a company experiences financial difficulties, because…… [Read More]
Are there potential risk reduction and diversification opportunities in adding commodities to a Norwegian investor's asset portfolio?
ecent global economic turmoil has inspired investors all over the globe to look for ways to protect their portfolios and to continue to make them grow despite a weak economy. Investments in commodities have been suggested as a solid hedge against future turmoil in the markets. The question is whether this is good advice or not for investors of all types and operating in different home economies. It is difficult to make a suggestion that will work for every investor and in all parts of the world. Therefore, the potential for commodity investing as a hedge against future instability is a question that must be answered for every country in the world on an individual investor basis. This research will explore whether commodity futures can be added to the portfolios of…… [Read More]
ehavioral Finance and Human Interaction a Study of the Decision-Making
Processes Impacting Financial Markets
Understanding the Stock Market
Contrasting Financial Theories
Flaws of the Efficient Market Hypothesis
Financial ubbles and Chaos
The stock market's dominant theory, the efficient market hypothesis (EMH) has been greatly criticized recently for its failure to account for human errors, heuristic bias, use of misinformation, psychological tendencies, in determining future expected performance and obtainable profits.
Existing evidence indicates that past confidence in the EMH may have been misdirected, as the theory's models do not show a thorough understanding of trading operations in a realistic light.
Researchers have suggested that a variety of anomalies and inconsistent historical results demand that traditional financial theories, namely the EMH, be reconstructed to include human interaction as a key decision-making process that directly affects the performance of financial markets.
This research paper aims to determine whether or not there is a…… [Read More]