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 8Question 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 3Problem 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 4Problem 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!