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Financial Markets and Institutions 6th edition Anthony Saunders, Marcia Cornett - Solutions
Why would a municipal bond issuer want to purchase third-party insurance on the bond payments?
How does a firm commitment underwriting differ from a best-efforts underwriting?
What is a bond indenture?
What is the difference between bearer bonds and registered bonds?
What is the difference between term bonds and serial bonds? Discuss.
What is a convertible bond? Is a convertible bond more or less attractive to a bond holder than a nonconvertible bond?
What is a callable bond? Is a call provision more or less attractive to a bond holder than a noncallable bond?
Explain the meaning of a sinking fund provision on a bond issue.
What happens to the fair present value of a bond when the required rate of return on the bond increases? Discuss.
Discuss the issues surrounding credit rating firms during the financial crisis.
How do bond ratings and interest rate spreads on bonds differ? Which measure is considered by many investors to be a more comprehensive measure of risk? Why?
Describe the major bond market participants.
What is the difference between a Eurobond and a foreign bond?
What are sovereign bonds?
How did sovereign bonds perform during the 2000s?
What are the differences between T-bills, T-notes, and T-bonds?
What is the difference between an investment-grade bond and a junk bond?
Refer to the T-note and T-bond quotes in Table. a. What is the asking price on the 2.750 percent November 2042 T-bond if the face value of the bond is $ 10,000?b. What is the bid price on the 3.125 percent August 2013 T-note if the face value of the bond is $ 10,000?
Refer to Table. a. Verify the July 16, 2013, asked yield of 0.69 percent on the Treasury bond, stripped principal STRIP maturing August 2016. Use a two-day settlement period from the date of purchase (i. e., ownership occurs on Thursday, July 18, 2013). The STRIP matures on August 15, 2016. b.
On July 10, 2015, you purchase a $ 10,000 T-note that matures on December 31, 2024 (settlement occurs two days after purchase, so you receive actual ownership of the bond on July 12, 2015). The coupon rate on the T-note is 2.125 percent and the current price quoted on the bond is 98.250 percent.
You can invest in taxable bonds that are paying a yield of 9.5 percent or a municipal bond paying a yield of 7.75 percent. If your marginal tax rate is 21 percent, which security bond should you buy?
A municipal bond you are considering as an investment currently pays a yield of 6.75 percent. a. Calculate the tax equivalent yield if your marginal tax rate is 28 percent.b. Calculate the tax equivalent yield if your marginal tax rate is 21 percent.
Refer to Table. a. On July 16, 2013, what were the coupon rate, price, and yield on municipal bonds issued by the Commonwealth of Massachusetts? b. What was the price, on July 15, 2013, on Dallas & Fort Worth TX bonds maturing on November 1, 2043?
Refer to Table. Verify the Bid Yield of 4.52 percent on the Bi-State Development Agency municipal bonds. Settlement occurs two days after purchase, so actual ownership of the bond occurs on July 18, 2013.
Refer to Table. Verify the yield of 2.170 percent on the Eastman Chemical bonds with a coupon of 2.400 percent and a maturity date of June 1, 2017. Settlement occurs two days after purchase, so actual ownership of the bond occurs on July 18, 2013.
A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 4.5 percent yield to maturity and a similar risk corporate bond that offers a 6.45 percent yield. Which bond will give the client more profit after taxes?
Refer again to Table.a. Verify the asked price on the 0.250 percent August 2014 T-note for Tuesday, July 16, 2013. The asked yield on the note is 0.159 percent and the note matures on August 31, 2014. Settlement occurs two business days after purchase; (i. e., you would take possession of the note
On October 5, 2015, you purchase a $ 10,000 T-note that matures on August 15, 2027 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, 2015). The coupon rate on the T-note is 4.375 percent and the current price quoted on the bond is 105.250 percent.
Consider an investor who, on January 1, 2016, purchases a TIPS bond with an original principal of $ 100,000, an 8 percent annual (or 4 percent semiannual) coupon rate, and 10 years to maturity.a. If the semiannual inflation rate during the first six months is 0.3 percent, calculate the principal
Consider an investor who, on January 1, 2017, purchases a TIPS bond with an original principal of $ 100,000, an 4.50 percent annual ( or 2.25 percent semiannual) coupon rate, and 5 years to maturity.a. If the semiannual inflation rate during the first six months is 1.25 percent, calculate the
Use the bond pricing formula and Table to calculate the number of years (to the nearest 1/1000th of a year) between the Thursday July 18, 2013, settlement date and the maturity date on the State of Illinois general obligation bonds maturing on July 1, 2033. The Bid Yield, 5.09 percent, is rounded
Refer to Table.a. What was the closing price on the Goldman Sachs 2.375 percent coupon bonds on July 16, 2013? b. What was the S& P bond rating on Wells Fargo 1.500 percent coupon bonds maturing in 2018 on July 16, 2013? c. What was the closing price on Morgan Stanley 5.950 percent bonds on July
A $ 1,000 face value corporate bond with a 6.5 percent coupon (paid semiannually) has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new
A $ 1,000 face value corporate bond with a 6.75 percent coupon (paid semiannually) has 10 years left to maturity. It has had a credit rating of BB and a yield to maturity of 8.2 percent. The firm recently became more financially stable and the rating agency is upgrading the bonds to BBB. The new
Hilton Hotels Corp. has a convertible bond issue outstanding. Each bond, with a face value of $ 1,000, can be converted into common shares at a rate of 61.2983 shares of stock per $ 1,000 face value bond (the conversion rate), or $ 16.316 per share. Hilton’s common stock is trading (on the
Gentherm Inc. has a convertible bond issue outstanding. Each bond, with a face value of $ 1,000, can be converted into common shares at a rate of 42.25 shares of stock per $ 1,000 face value bond (the conversion rate), or $ 19.85 per share. Gentherm’s common stock is trading (on the NYSE) at $
Why are mortgage markets studied as a separate capital market?
What are the four major categories of mortgages and what percentage of the overall market does each entail?
What is the purpose of putting a lien against a piece of property?
Explain the difference between a federally insured mortgage and a conventional mortgage.
Explain the difference between a fixed-rate mortgage and an adjustable- rate mortgage. Include a discussion of mortgage borrowers’ versus mortgage lenders’ preferences for each.
What are the benefits and drawbacks to a mortgage borrower when refinancing a mortgage?
What are “points” on a mortgage? What factors does a mortgage borrower need to consider when deciding whether or not to take points on a mortgage?
What is a jumbo mortgage?
What is a subprime mortgage? What instrumental role did these mortgages play in the recent financial crisis?
What is an option ARM? What are the different options available with this type of mortgage?
How did the U.S. secondary mortgage markets evolve?
What is a mortgage sale? How does a mortgage sale differ from the securitization of a mortgage?
How did mortgage-backed securities contribute to the recent financial crisis?
What is a pass- through security?
What is the Government National Mortgage Association? How does this organization play a role in secondary mort-gage markets?
What is the Federal National Mortgage Association? How does this organization play a role in secondary mortgage markets?
How has the U. S. government’s sponsorship of FNMA and FHLMC affected their operations? Describe the problems these two GSEs have experienced over the last 10 years.
Describe a collateralized mortgage obligation. How is a CMO created?
What is a mortgage-backed bond? Why do financial institutions issue MBBs?
Who are the major participants in the mortgage markets?
You plan to purchase a $ 100,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 8.25 percent. You will make a down payment of 20 percent of the purchase price.a. Calculate your monthly payments on this mortgage. b. Calculate the amount of
You plan to purchase a $ 175,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 7.75 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgage. b. Calculate the amount of interest
You plan to purchase an $ 80,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 8.00 percent. You will make a down payment of 20 percent of the purchase price.a. Calculate your monthly payments on this mortgage. b. Calculate the amount of interest
You plan to purchase a $ 150,000 house using a 15-year mortgage obtained from your local credit union. The mortgage rate offered to you is 5.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgage. b. Construct the
You plan to purchase a $ 200,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 6.50 percent. You will make a down payment of 20 percent of the purchase price.a. Calculate your monthly payments on this mortgage. b. Construct the
You plan to purchase a $ 200,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 7.25 percent, or a 15-year mortgage with a rate of 6.50 percent. You will make a down payment of 20 percent of the purchase price.a. Calculate the amount of interest and,
You plan to purchase a $ 240,000 house using either a 30-year mortgage obtained from your local bank with a rate of 5.75 percent, or a 15-year mortgage with a rate of 5.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate the amount of interest and, separately,
You plan to purchase a house for $ 115,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options for payment: Option 1: Mortgage rate of 9
You plan to purchase a house for $ 195,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options for payment: Option 1: Mortgage rate of 5.5
You plan to purchase a house for $ 175,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 25 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options for payment: Option 1: Mortgage rate of 5
You plan to purchase a $ 220,000 house using a 15-year mortgage obtained from your bank. The mortgage rate offered to you is 4.75 percent. You will make a down payment of 20 percent of the purchase price.a. Calculate your monthly payments on this mortgage. b. Construct the amortization schedule for
You plan to purchase a $ 300,000 house using a 15-year mortgage obtained from your bank. The mortgage rate offered to you is 4.50 percent. You will make a down payment of 20 percent of the purchase price.a. Calculate your monthly payments on this mortgage. b. Construct the amortization schedule for
Why are stock markets the most watched and reported of the financial security markets?
What are some characteristics associated with dividends paid on common stock?
What is meant by the statement “common stockholders have a residual claim on the issuing firm’s assets”?
What is a dual-class firm? Why do firms typically issue dual classes of common stock?
What is the difference between nonparticipating and participating preferred stock?
What is the difference between cumulative and noncumulative preferred stock? Discuss.
Describe the registration process for a new stock issue.
What have been the trends in the growth of the major U.S. stock market exchanges?
What is a market order? What is a limit order? How are each executed?
What are circuit breakers in the context of stock market trading and volatility?
What are limit up- limit down rules?
What are flash trading, naked access, and dark pool trading? What are the benefits and drawbacks of these activities?
What are the major U.S. stock market indexes?
What is the difference between a price-weighted stock market index and a value-weighted stock market index?
Who are the major holders of corporate stock?
Are stock market indexes consistently accurate predictors of economic activity?
Describe the three forms of stock market efficiency
Who are the major regulators of the stock markets?
Which countries or regions of the world have the largest stock markets?
What is an ADR? How is an ADR created?
Suppose a firm has 15 million shares of common stock outstanding and six candidates are up for election to five seats on the board of directors. a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure election to the board? b. If the firm uses
Suppose a firm has 50 million shares of common stock outstanding and eight candidates are up for election to six seats on the board of directors.a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure election to the board? b. If the firm uses
Suppose you own 50,000 shares of common stock in a firm with 2.5 million total shares outstanding. The firm announces a plan to sell an additional 1 million shares through a rights offering. The market value of the stock is $ 35 before the rights offering and the new shares are being offered to
Suppose you own 100,000 shares of common stock in a firm with 12.5 million total shares outstanding. The firm announces a plan to sell an additional 2.5 million shares through a rights offering. The market value of the stock is $ 22.50 before the rights offering and the new shares are being offered
Refer to the stock market quote in Table. a. What was the closing stock price for Abercrombie & Fitch on July 24, 2013? b. What was the dividend yield on El Paso Electric stock as of July 25, 2013? c. What were the earnings per share on Wells Fargo stock for the period July 2012 through July 2013?
Refer to the stock market quote in Table. a. What was the closing stock price for Abbott Laboratories on July 25, 2013? b. What were the high and low prices at which McGraw-Hill traded between July 26, 2012, and July 25, 2013? c. What was the dividend yield on Waste Management stock as of July 25,
At the beginning of the year, you purchased a share of stock for $ 35. Over the year the dividends paid on the stock were $ 2.75 per share. a. Calculate the return if the price of the stock at the end of the year is $ 30. b. Calculate the return if the price of the stock at the end of the year is $
Use the information in the following stock quote to calculate McKesson’s earnings per share over the last year.
Use the information in the following stock quote to calculate Abercrombie & Fitch’s earnings per share over the last year.
What are foreign exchange markets and foreign exchange rates? Why is an understanding of foreign exchange markets important to financial managers and individual investors?
If the Swiss franc is expected to depreciate in the near future, would a U. S. based FI in Bern City prefer to be net long or net short in its asset positions? Discuss.
How did the Bretton Woods and the Smithsonian Agreements affect the ability of foreign exchange rates to float freely? How did the elimination of exchange boundaries in 1973 affect the ability of foreign exchange rates to float freely?
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