Investment Banks and Financial Institutions

Investment Banks & Financial Institutions
Investment Banks & Financial Institutions

We can write this or a similar paper for you! Simply fill the order form!

Investment Banks and Financial Institutions

ORDER INSTRUCTIONS:

Investment Banks and Financial Institutions

1. Answer questions 4-8 in the attached document. 
2. Answer Problems 35, 37, 39, and 41 in the attached documents then answer them again using the below scenarios. 
3. Redo problem 35, assuming a coupon rate of 8% in part a, and yields to maturity of 12 and 12.5% in part b ?
4. Repeat problem 37, assuming that the zero coupon bond has 7 years to maturity.
5. Repeat problem 39, assuming that the three bonds under consideration have 6 years to maturity.
6. Repeat problem 41, assuming that the fair present value rose from $975 to $ 990.

Investment banking is the division of a bank or financial institution that serves governments, corporations, and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services. Investment banks act as intermediaries between investors (who have money to invest) and corporations (who require capital to grow and run their businesses).

Below is a partial answer to the above homework questions by one of our writers. If you are interested in a custom non plagiarized top quality answer, click order now to place your order.

Investment Banks and Financial Institutions

PART 1
Questions 4 to 8
Question 4

Identify whether a bond will be considered a premium bond, a discount or a par bond
a) A bond with a market price higher than its par value is a premium bond
b) A bond with a coupon rate equals to its yield to maturity is considered a par bond
c) A bond with a coupon rate less than the required rate of return is considered a discount bond
d) A bond whose coupon rate is less than its yield to maturity is considered a discount bond
e) A bond whose coupon rate is greater than its yield to maturity is considered a premium bond
f) a bond whose fair value is less than its face value is considered a discount bond

Question 5
How equity valuation differ from bond valuation
Valuation of equity onsiders dividend on stock, growth rate, rate of return. These considerations are appropriate where an entity uses dividend growth model
formular where dividend growth factor is equal throughout: Po = D1/r – g
where dividend growth factor is not equal: Po = {Dn (1 + gn)/r – g} (1/(1 + r)n)
Valuation of bond considers bond coupon rate, investors required rate of return, maturity value and maturity period
Formulae = (Intr x PVAF) + (MV x PVIFrn)

Question 6
What happens to the fair present value of a bond when the required rate of return on the bond increases
An increase in required rate of return lowers the fair present value of a bond

Question 7
A change in interest rate affects the price of of both short and long because change in interest rate affects the yield of both and long and short-term loan
Long-term bond’s price is more affected by increase in interest rate due to long duration they cove

Question 8
Bond’s price with large coupon rate are affected with the change in interest rates more than bond’s price with a small interest rate.
This is because large coupon rate reduces bond’s price by a larger margin.

Investment Banks and Financial Institutions

PART 2
Aswer problems
Problem 35
a) what is the duration of a five year treasury bond with a 10% semi-annual selling at per
periods = 2 x 5 years = 10 periods
par value= $1000
coupon = 10%/2 = 5%
interest = 5% x 1000 = 50
bond = (50 x PVIF 10 periods @ 5%) + (1050 x PVIF10 periods @5%) =
= 47.62 + 952.38 X10 = $9571.42
Price = 952.38 + 47.62 = $1000
period = 9571.42/1000 = 9.57/2 = 4.78

b) duration if the yield to maturity increases to 14% and 16%
1st period interest 14% x 1000 x 1/1+0.14 = 122.81
2nd (140 + 1000 ) x 0.7695 = 877.19
(877.19 x 10 ) + 122.81 = $8894.71
price = 1000
8894.71/1000 = 8.89/2 = 4.4 YEARS

At 16%
1st period interest 16% x 1000 x 1/1+0.16 = 137.93
2nd (160 + 1000 ) x 0.7432 = 862.07
(862.07 x 10 ) + 137.93 = $8758
price = 1000
8758.62/1000 = 8.75/2 = 4.3 years

c) Conclusion
An increase in bond yield to maturity reduces the duration of a bond. This is because an increased yield to maturity increases the cash inflow hence reducing the period of maturity

Problem 37
Duration of zero coupon bond that has eight years to maturity
The duration of a bond with a zero coupon rate is the same its maturity date. Thus the duration of the bond is 8 years
if the duration of maturity increases to 10 years, bo nd duration will be 10 years
if the maturity increases to 12 years, bond duration will be 12 years

Problem 39

a) At 8%
interest = 8% x 10000 = 800
1st 800 x 0.9259 = $740.74
2nd (800 + 10000) x 0.8573 = 9259.26
total = (9259.26 x 5) + 740.74 = $47036.29/10000 = 4.7 years

b) at 10%
interest = 10% x 10000 = 1000
1st 1000 x 0.9091 = $909.10
2nd (1000 + 10000) x 0.8264 = 9090.91
Total = (9090.91 x 5) + 909.1 = $46363.65/10000 = 4.6 years

c) coupon rate 12%
interest = 12% x 10000 = 1200
1st 1200 x 0.8929 = $1071
2nd (1071 + 10000) x 0.7972 = 8825.73
Total = (8825.73 x 5) + 1071= $45199.67/10000 = 4.5 years

Problem 41
At 9.75%
interest = 9.75% x 975 = $95.06

at 9.25%
interest = 9.25% x 995 = $92.04
995/92.04 = 974/95.06 = 10 years

Investment Banks and Financial Institutions

PART 3
Problem 35

a) Coupon rate of 8%
interest = 8% x 1000 = 80
1st 80 x 0.9259 = $74.07
2nd (80 + 1000) x 0.8573 = 925.92
total = (925.92 x 5) + 74.07 = $4703.63/10000 = 4.7 years

b) yield to maturity is 12%
interest = 12% x 1000 = 120
1st 120 x 0.8929 = $107.1
2nd (107.1 + 1000) x 0.7972 = 882.57
Total = (882.57 x 5) + 107.1= $4519.96/1000 = 4.5 years

Yield to maturity is 12.5%
interest = 12.5% x 1000 = 125
1st 125 x 0.8889 = $111.1
2nd (111.1 + 1000) x 0.7901 = 877.91
Total = ( 877.91 x 5) + 111.1= $4500.63/1000 = 4.5 years

Investment Banks and Financial Institutions

PART 4
Problem 37

Duration of zero coupon bond that has seven years to maturity
The duration of a bond with a zero coupon rate is the same its maturity date. Thus the duration of the bond is 7 years
if the duration of maturity increases to 10 years, bo nd duration will be 10 years
if the maturity increases to 12 years, bond duration will be 12 years

PART 5
Repeat problem 39,assuming that the three bonds under consideration have 6 years to maturity.

a) At 8%
interest = 8% x 10000 = 800
1st 800 x 0.9259 = $740.74
2nd (800 + 10000) x 0.8573 = 9259.26
total = (9259.26 x 6) + 740.74 = $56296.3/10000 = 5.6 years

b) at 10%
interest = 10% x 10000 = 1000
1st 1000 x 0.9091 = $909.10
2nd (1000 + 10000) x 0.8264 = 9090.91
Total = (9090.91 x 6) + 909.1 = $55455.37/10000 = 5.5 years

c) coupon rate 12%
interest = 12% x 10000 = 1200
1st 1200 x 0.8929 = $1071
2nd (1071 + 10000) x 0.7972 = 8825.73
Total = (8825.73 x 6) + 1071= $54025.38/10000 =5.4 years

Investment Banks and Financial Institutions

PART 6
Repeat problem 41, assuming that the fair present value rose from $975 to $ 990

duration = 990/9.25 = 10.7 years

We can write this or a similar paper for you! Simply fill the order form!

Investment Analysis and Forecasting

Investment Analysis and Forecasting
Investment Analysis and Forecasting

Want help to write your Essay or Assignments? Click here

Investment Analysis and Forecasting

Overview

In 3–6 pages, complete a ratio analysis using a provided balance sheet and income statement, specify how you would analyze a potential investment, and describe how you would forecast a company’s potential success.

An investment analysis has two fundamental components: 1) A financial analysis, such as reviewing current financial ratios within the company, and 2) a non-financial analysis, which is reviewing a company’s strategic vision, employee satisfaction, et cetera. The first two parts of your assessment provide an opportunity for you to demonstrate both of these types of analyses.

The goal of forecasting the performance of a company is to estimate the financial performance of a company over a selected period of years. When forecasting a company’s performance, similar to an investment analysis, you look at both financial and non-financial factors. This is the focus of the last part of your assessment.

Investment Analysis and Forecasting

Want help to write your Essay or Assignments? Click here

Library Resources
  • Brigham, E. F., & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage.

Want help to write your Essay or Assignments? Click here

Real Risk-Free Rate of Return

Real Risk-Free Rate of Return
Real Risk-Free Rate of Return

Want help to write your Essay or Assignments? Click here

Real Risk-Free Rate

Current 30-day T-bills are yielding 3.5 percent. Your accountant provided you with these interest rate premiums:

  • IP = 1.5%
  • LP = 0.6%
  • MRP = 1.8%
  • DFP = 2.15%

What is the real risk-free rate of return based on this data?

The risk-free rate of return is the theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

The so-called “real” risk-free rate can be calculated by subtracting the current inflation rate from the yield of the Treasury bond matching your investment duration.

Want help to write your Essay or Assignments? Click here

Expected Interest Rate

Expected Interest Rate
Expected Interest Rate

Want help to write your Essay or Assignments? Click here

Expected Interest Rate

For this problem, examine Treasury securities. Considering the following numbers, what would the yield on 3-year Treasury securities be?

  • Real risk-free = 4%.
  • Inflation expected at 1.5% for this year and 2% for the next 2 years.
  • Maturity risk premium = 0.
Treasury Securities

Treasury securities—including Treasury bills, notes, and bonds—are debt obligations issued by the U.S. Department of the Treasury. Treasury securities are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government.  The income from Treasury securities may be exempt from state and local taxes, but not from federal taxes.

Want help to write your Essay or Assignments? Click here

Portfolio Required Return

Portfolio Required Return
Portfolio Required Return

Want help to write your Essay or Assignments? Click here

Portfolio Required Return

             You are the money manager of a $10 million investment fund, which consists of four stocks. This fund has the following investments and betas:

StockInvestmentBeta
A$3,000,0001.50
B$1,000,000(0.50)
C$2,000,0001.25
D$4,000,0000.75

If the market’s required rate of return is 12 percent, and the risk-free rate is 4 percent, what is the fund’s required rate of return?

The required rate of return (RRR) is the minimum return an investor will accept for owning a company’s stock, as compensation for a given level of risk associated with holding the stock. The RRR is also used in corporate finance to analyze the profitability of potential investment projects

Want help to write your Essay or Assignments? Click here

CAPM and Required Return

CAPM and Required Return
CAPM and Required Return

Want help to write your Essay or Assignments? Click here

CAPM and Required Return

Calculate the required rate of return for XYZ Inc. using the following information:

  • The investors expect a 3.0 percent rate of inflation.
  • The real risk-free rate is 2.0 percent.
  • The market risk premium is 6.0 percent.
  • XYZ Inc. has a beta of 1.7.
  • Over the past 5 years, the realized rate of return has averaged 13.0 percent.

A principal advantage of CAPM is the objective nature of the estimated costs of equity that the model can yield. CAPM cannot be used in isolation because it necessarily simplifies the world of financial markets. But financial managers can use it to supplement other techniques and their own judgment in their attempts to develop realistic and useful cost of equity calculations.

Want help to write your Essay or Assignments? Click here