Your opinion about the extent to which markets are efficient will have a significant impact on your choice re effective trading strategies. Briefly explain why and how this is true.

What are some of the consequences of the corporate governances followed in Germany (bank based corporate governance) & United States (market based corporate governance)?

To fund some of its expansion plans, Ohio Rubber & Tire (ORT) recently issued 30-year bonds with low coupon rates. Investors were willing to purchase the bonds despite the low coupon rates because ORT’s debt has consistently been rated AAA during the past decade, which means that bond rating agencies consider the company’s default risk to be extremely low.

Now ORT is considering raising additional funds by issuing new debt. The company plans to use the new funds to finance additional expansion. Unlike its previous expansion efforts, however, ORT now plans to grow the firm by purchasing young firms that just “went public” that are not in the tire and rubber industry.

Wally, who works closely with ORT’s investment banker, has been assigned the task of determining how to best raise the desired funds. After speaking with the investment banker, some friends who work at other companies, and peers in ORT’s international subsidiaries, Wally is seriously considering recommending to management that ORT issue a new security that has the characteristics of both debt and equity. The security, which was recently introduced in the U.S. financial markets, is classified as debt because fixed interest payments that are tax deductible are paid every year. Unlike conventional bands, however, these hybrid bonds, which are called “boondocks,” have maturities of 50 to 60 years. In addition, the firm is not considered to be in default if it misses interest payments when the firm’s credit rating drops below B+. Most experts consider boondocks to be quite complex financial instruments.

Through his research, Wally discovered that boondocks have been used for quite some time outside of the Unite States. Compared with conventional debt, companies that have used boondocks have increased their earnings per share (EPS) significantly. A major reason EPS increases is because the cost of a bondock generally is much lower than equity, but the instrument is comparable to equity financing with respect to maturity and default risk. For example, Wally discovered that ORT could issue boondocks with an after-tax cost equal to 5%, which is only slightly higher than the after-tax cost of issuing conventional debt and is approximately one-third the cost of issuing new equity. Although boondocks are considered risky, the actual degree of risk is unknown. The friends and coworkers with whom Wally consulted seem to think there is a slight chance that investors—both stockholders and bondholders—would earn returns significantly lower than would be earned with conventional debt when the company performs extremely poorly. The opposite should occur when the company performs very well.

The major drawback to issuing boondocks is that they will significantly increase the financial leverage of ORT, and thus the value of the recently issued bonds will decrease substantially. On the other hand, Wally thinks that issuing boondocks can be a win-win proposition for ORT and its common stockholders. If the company’s expansion plans are unsuccessful, the market values of both its debt and its equity would decrease to the point that it would be attractive for the firm to repurchase these financing instruments in the capital markets. If this is true, then issuing boondocks would benefit stockholders at the expense of bondholders. ORT’s executives are major stockholders because their bonuses and incentives are paid in the company’s stock.

What should Wally do? What would you do if you were Wally?

Requirements: Develop a ten-year sales projection assuming the growth as below:

1. 1% for 2^nd year
2. 3% for 3^rd to 5^th year
3. 8% for 6^th to 10^th year

M/S. Marutham Investment Bond 2013 was issued in January 2014, with a maturity period of 2 years. With a Coupon payment of 7% per annum made every 6 months with a Face value of Rs.100. What is the YTM for the bond, if the prevailing market price was Rs. 84 as at January 2014?

Homework (Submit in groups)
You are 20 and plan to work for 45 years until you retire at 65. You expect to live until you are 90.
You will collect a pension. Your annual pension payment will be equal to your final salary times a 3% crediting rate times the number of years that you work.
Your starting salary (paid at the end of the year) is $40,000. You expect to get a 4% annual raise.
Your discount rate is 5%.

Draw a timeline and Identify:
• Annual salary payment
• Time of retirement
• Annual pension payment
• Value of pension at retirement
• Value of pension today

ECON 315 / Money, Banking and Financial Markets

1. During the financial collapse in the U.S. beginning in 2008, several bond rating agencies were accused of overstating the quality of the assets they were rating. It was also revealed that these agencies had close working relationships with the firms they rated. Briefly explain what sorts of problems arise because of this relationship.

2. Consider the “Five Cs” of business lending. Define three of them and give your own example.

3. Explain the difference between adverse selection, information asymmetry and moral hazard. Describe each and provide at least one example.

4. Describe the Efficient Market Hypothesis. What implications does it have on the market?

Consider the following information: –

On the FOREX market, an American bank gives the following quotes

€:$ = 1.2010-1.2060

₤:$ = 1.7960-1.8010 –

A British bank gives the following quote: ₤:€ = 1.5060-1.5080 Is there an arbitrage opportunity? Why or why not? If yes, what is the arbitrage profit? Use $1,000,000.

Please show all work will rate 5 stars thank you!

1.Knight, Inc., has issued a three-year bond that pays a coupon of 6.09 percent. Coupon payments are made semiannually. Given the market rate of interest of 5.92 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)
2.Ruth Hornsby is looking to invest in a three-year bond that makes semiannual coupon payments at a rate of 13.59 percent. If these bonds have a market price of $952.22, what yield to maturity and effective annual yield can she expect to earn? (Round answer to 2 decimal places, e.g. 15.25%.)

3.Rudy Sandberg wants to invest in four-year bonds that are currently priced at $841. These bonds have a coupon rate of 5.98 percent and make semiannual coupon payments. What is the current market yield on this bond? (Round answer to 2 decimal places, e.g. 15.25%.)
4.The International Publishing Group is raising $10 million by issuing 15-year bonds with a coupon rate of 8.49 percent. Coupon payments will be made annually. Investors buying the bonds today will earn a yield to maturity of 8.49 percent. At what price will the bonds sell in the marketplace? Explain. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25.)

5.Nanotech, Inc., has a bond issue maturing in seven years that is paying a coupon rate of 7.52 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. If it can refinance at 10.25 percent, how much will Nanotech pay to buy back its current outstanding bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25.)

2. Consider the following quotes:

Yen per Pound: 256

Yen per dollar: 180

Dollar per pound: 1.5

Suppose 1 million dollars invested Is there any possibility of triangular arbitrage? Why or why not? If yes, what is the arbitrage profit? Use $1,000,000.

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1) You are considering an investment that will pay you $12,000 the first year, $13,000 the second year, $17,000 the third year, $19,000 the fourth year, $23,000 the fifth year, and $28,000 the sixth year (all payments are at the end of each year). What is the maximum you would be willing to pay for this investment if your opportunity cost is 11%?

Solve this question assuming that payments will be received at the beginning of each year rather than the end of each year. Please solve using Excel

In a minimum of 200 words or more, describe the issues regarding the validity of LIBOR rate before and during the financial crisis.(please i need 200 words, thank you)

What does it mean to say that a buyer has a right, not an obligation?

Opportunity cost of capital. Explain why we refer to the opportunity cost of capital, instead of just “cost of capital” or discount rate”. While you’re at it, also explain the following statement: “The opportunity cost of capital depends on the proposed use of cash, not the source of financing”.