Big Valley National Bank is an FDIC member. They offer checking, certificate ofdeposit and savings accounts. The
Question:
Big Valley National Bank is an FDIC member. They offer checking, certificate ofdeposit and savings accounts. The CDs come due in 1 year and yield a little over5%. Big Valley National Bank has bonds outstanding that yield over 6% and alsocome due in 1 year.Big Valley National Bank has common equity trading at$32/share and yields 4.6%. Analysts have a price target of $42/share on thecommon equity. Discuss the tradeoffs of investing money in Big Valley's checkingaccount, savings account, CD, bonds and equity.
2.Discuss the advantages and disadvantages of a ladder versus a bullet portfoliostructure.
3. David and Barbara are discussing the strange yield curve. David says, "look howthe long end of the yield curve is lower than the short end. That means interestrates will go down." Barbara replies, "yields on long bonds are lower than theyields on shorter term bonds because the fed is rapidly unloading shorter termbonds and the market is having trouble absorbing them." Who might be right, who might be wrong, and what theory of term structure dothey purport?
4. What is a par bond and why is it useful for a derivatives trader?
Expert Answer:
1 Investment Tradeoffs for Big Valley National Bank Checking Account Offers liquidity but typically low interest rates suitable for everyday expenses ... View the full answer
