Organizational Behavior Bridging Science And Practice Version 4 0 4th Edition Talya Bauer, Berrin Erdogan - Solutions

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• explain the role of forward rates in formulating the inputs for constructing a portfolio.
• explain how the degree of departure of a managed portfolio from the benchmark index determines the degree of active management.
• distinguish between active and passive strategies.
• identify the elements in developing and implementing a portfolio strategy (writing an investment policy, selecting the type of investment strategy, formulating the inputs for portfolio construction, and constructing the portfolio).
• identify the types of constraints imposed on managers and/or investors.
• define what the duration of a liability is.
• explain what the economic surplus of an entity is and how its exposure to changes in interest rates is assessed.
• identify some of the risks associated with liabilities.
• describe what performance risk is.
• identify the major broad-based bond market indexes.
• define what a funded investor is and the investment objective of a funded investor.
• classify different types of liabilities.
• define liabilities.
• explain the two types of benchmarks (liability structure and bond index) used to identify an investment objective.
• identify the activities in the investment management process (setting the investment objectives, developing and implementing a portfolio strategy, monitoring the portfolio, and adjusting the portfolio).
24. What are the two types of credit risk models used to value corporate bonds?
23. Credit scoring models have been found to be helpful to analysts and bond portfolio managers. What are their limitations as a replacement for human judgment in credit analysis?
22. Krane Products Inc. is a manufacturer of ski equipment. The company has been in operation since 1997. Ms. Andrews is a credit analyst for an investment management company. She has been asked to analyze Krane Products as a possible purchase for the bond portfolio of one of her firm’s accounts.
21. Comment on the following statement: ‘‘The difficulty with analyzing bonds issued by foreign governments is the intangible and non-quantitative elements involved in the credit analysis. I would not encounter such complexities when analyzing the credit worthiness of domestic corporate bonds
20.a. Why do rating agencies assign both a local currency debt rating and a foreign currency debt rating to the bonds of a sovereign government?b. How do the factors considered in deriving a local currency debt rating differ from those for a foreign currency debt rating?
19. You are reviewing a publication of Moody’s Investors Service entitled ‘‘Moody’s Approach to Rating Regional and Local Governments in Latin America,’’ published in August 1997.On page 3 of the publication, the following was written:‘‘A Moody’s credit rating is an independent
18.a. What is the underlying principle in assessing the credit worthiness ofmunicipal revenue bonds?b. In a municipal revenue bond, what is a ‘‘rate covenant’’ and why is such a covenant included?
17. What are the four basic categories that are considered in assessing the credit quality of tax-backed municipal debt?
16.a. Some asset-backed security transactions may be characterized as ‘‘true securitizations,’’while others may be more properly classified as ‘‘hybrid transactions.’’ What is the distinguishing feature of a ‘‘true securitization’’ and a ‘‘hybrid transaction’’?b. How
15. Why is it necessary for an analyst to assess the financial condition of a servicer in an asset-backed security transaction?
14. In the analysis of an asset-backed security, the analysis of the collateral allows the analyst to project the cash flow from the underlying collateral under different scenarios. However, this is not sufficient to assess the credit worthiness of an asset-backed security transaction.Explain why?
13. The following statement was made by Stephen Esser in ‘‘High-Yield Bond Analysis: The Equity Perspective,’’ in Ashwinpaul C. Sondhi (ed.), Credit Analysis of Nontraditional Debt Securities (Charlottesville, VA: Association for Investment Management and Research, 1995), p. 54: ‘‘An
12. Explain why an understanding of the corporate structure of a high-yield issuer that has a holding company structure is important.
11. Explain the following two statements made by Robert Levine in ‘‘Unique Factors in Managing High-Yield Bond Portfolios,’’ in Frank K. Reilly (ed.), High-Yield Bonds:Analysis and Risk Assessment (Charlottesville, VA: Association for Investment Management and Research, 1990), p. 36.a.
10.a. What is the motivation for corporate governance ratings?b. What are some of the characteristics of a firm considered in assigning a corporate governance rating?
9. What is meant by agency risk?
8.a. Why is the analysis of covenants important in credit analysis?b. What is a negative covenant?c. Why is covenant analysis particularly important for assessing the credit worthiness of high-yield corporate issuers?
7.a. Using S&P’s definitions, what is the relationship between free cash flow, discretionary cash, and prefinancing cash flow?b. What is the meaning of free cash flow, discretionary cash flow, and prefinancing cash flow?
6. What type of information can a credit analyst obtain from an analysis of the statement of cash flows?
5. In 1998 there were several developments in Europe leading to the liberalization of the European telecommunication industry. In October 1998, Moody’s Investors Service published a report (‘‘Rating Methodology: European Telecoms’’) addressing the issues in the rating of European
4.a. There are various forms of back-up credit facilities available to a corporation. What factors should an analyst consider in assessing the back-up credit facilities available to an issuer?b. What is a ‘‘material adverse change clause provision’’ in a back-up credit facility and what is
3. What are some of the major factors considered by rating agencies in assessing the quality of management?
2.a. In addition to credit ratings, what other information is provided by rating agencies that investors can use to gauge the credit risk of an issuer?b. How do long-term credit ratings differ from short-term credit ratings?
1. Explain whether you agree or disagree with the following statement: ‘‘The credit risk of a bond is the risk that the issuer will fail to meet its obligation to make timely payment of interest and principal.’’
• explain structural and reduced form credit risk models and compare these two types of models.
• describe what a credit scoring model is and its limitations in predicting corporate bankruptcy.
• contrast the credit analysis required for corporate bonds with that required for: (1) assetbacked securities, (2) municipal securities, and (3) sovereign debt.
• explain why two ratings are assigned to each national government and discuss the key factors emphasized by Standard & Poor’s for each rating.
• discuss the key economic and political risks considered by Standard & Poor’s in assigning sovereign ratings.
• explain how the creditworthiness of municipal bonds is assessed, and contrast the analysis of tax-backed debt with the analysis of revenue obligations.
• discuss the factors considered by rating agencies in rating asset-backed securities (i.e., collateral credit quality, seller/servicer quality, cash flow stress and payment structure, and legal structure).
• explain why some investors advocate using an equity perspective when analyzing the creditworthiness of high-yield issues.
• explain the importance of the corporate structure of a high-yield issuer that has a holding company.
• explain the typical elements of the debt structure of a high-yield issuer, the interrelationships among these elements, and the impact of these elements on the risk position of the lender.
• describe the various covenants and discuss their importance in assessing credit risk for both investment grade and non-investment grade companies.
• discuss why and how cash flow from operations is used to assess the ability of an issuer to service its debt obligations and to assess the financial flexibility of a company.
• describe corporate governance ratings.
• evaluate the credit quality of an asset-backed, non-agency mortgage-backed security, municipal bond, or sovereign bond, given information about the issuer.
• evaluate the credit quality of an issuer of a corporate bond, given such data as key financial ratios for the issuer and the industry.
• compute the key ratios used by credit analysts to assess the ability of a company to satisfy its debt obligations and explain the limitations of these ratios.
• explain how credit analysis encompasses assessing the borrower’s character (including the quality of management) and capacity to repay (including sources of liquidity), and the issue’s underlying collateral and covenants.
• describe the meaning of credit ratings, rating watches, and rating outlooks.
• distinguish among default risk, credit spread risk, and downgrade risk.
20. Using the binomial interest rate tree from the previous question, answer the following questions for a 3-year floor with a floor rate of 5.5% where the payoff is annual. Assume that the notional amount of the floor is $50 million.a. What is the value of the Year 1 floorlet?b. What is the value
19. Answer the following questions based on the following binomial interest rate tree:Consider a 3-year cap with a cap rate of 4% and the payoff for the cap is annual. Suppose that the notional amount of the cap is $25 million.a. What is the value of the Year 1 caplet?b. What is the value of the
18.a. Would the buyer of an option prefer a high or low theta?b. If an investor anticipates a rise in expected interest rate volatility that is currently not priced into an option, would this investor prefer an option on a bond with a high or low kappa?
17. The duration and convexity measure of a bond are used to approximate the change in the price of a bond if interest rates change. What two measures play a similar role in trying to estimate the price of an option if the price of the underlying bond changes?
16. Assume the following:Price of a call option = $1.70 Price of underlying bond = 70 Strike price for call option = 115 Time to expiration = 2 years Without doing any calculations, explain what you believe the value of the delta of this call option is?
15.a. What is the most common model for valuing options on Treasury bond futures contracts?b. What are the limitations of this model?
14. Use the following arbitrage-free binomial interest rate tree to answer the questions that follow:• 7.8620%NHL• 6.4370%Today Year 1 Year 2 NLL• 9.6030%NHH• 8.4814%NH• 6.9440%NL• 7.5000%Na. What is the value of a 3-year Treasury bond with a 9% coupon rate?b. What is the value of a
13. Herman Mills is a bond portfolio manager who is just learning about options on bonds. In college, he learned about options on common stock and he was introduced to the Black-Scholes option pricing model. Mr. Mills has asked you whether or not it is appropriate to apply the Black-Scholes option
12. After a period of extreme interest rate volatility that saw interest rates increase, an investor observed that the price of both put and call options on bond futures increased even though bond prices decreased. The investor was confused because he thought that a rise in rates resulting in a
11. Complete the table below for the six options specified in the first column. Assume that the bond’s price in the third column means the price of the underlying bond and that each option expires in one year:Type of Strike Bond’s Option In, at, or Intrinsic Time option price price price out of
10. Suppose that an interest rate swap has one year remaining. The notional amount of the swap is $50 million and all payments (fixed rate and floating rate) are quarterly based on an ‘‘actual/360’’ day count basis. The reference rate is 3-month LIBOR.a. Complete the following table for the
9. An interest rate swap had an original maturity of five years. Today, the swap has two years to maturity. The present value of the fixed-rate payments for the remainder of the term of the swap is $910,000. The present value of the floating-rate payments for the remainder of the swap is
8.a. Suppose at the inception of a 5-year interest rate swap in which the reference rate is 3-month LIBOR the present value of the floating-rate payments is $16,555,000. The fixed-rate payments are assumed to be semiannual. Assume also that the following is computed for the fixed-rate payments
7. Given the current 3-month LIBOR and the fiveCDEurodollarCDfutures prices shown in the table below, compute the forward rate and the forward discount factor for each period.Current 3-month 3-month Eurodollar CD Period Days in quarter LIBOR CD futures price 1 90 5.90%2 91 93.90 3 92 93.70 4 92
6.a. Assume that the swap rate for an interest rate swap is 7% and that the fixed-rate swap payments are made quarterly on an ‘‘actual/360 basis.’’ If the notional amount of a 2-year swap is $20 million, what is the fixed-rate payment at the end of each quarter assuming the following number
5. Consider the following interest rate swap:• swap starts today, January 1 of year 1 (swap settlement date)• the floating-rate payments are made quarterly based on ‘‘actual/360’’• the reference rate is 3-month LIBOR• the notional amount of the swap is $40 million• the term of the
4. Mr. Robert Thompson is an investment manager. Recently, he attended a conference on opportunities in futures markets. Based on the information presented at the conference, he believes that he can enhance returns by exploiting mispriced Treasury bond futures contracts. He saw how a mispriced
3. Explain what the effect of delivery options for the Treasury bond futures contract are on its theoretical futures price and why these delivery options affect the theoretical futures price.
2.a. Suppose that the underlying bond for a futures contract has a coupon rate of 6%, par value of $100, and the next coupon payment is to be made in six months. Suppose further that the cash market price for this bond is 94. What is the theoretical futures price for a contract that settles in five
1.a. Suppose that the price of a bond futures contract that settles in four months is $101 and the price of the underlying bond is $98. The underlying bond has a coupon rate of 9%, par value of $100, and the next coupon payment is to be made in six months.The borrowing rate is 7.2% per annum. If an
• compute the value of each caplet and the value of a cap and a floor given a binomial interest rate tree.
• compare the roles of delta and duration in approximating price changes.
• explain how to measure the sensitivity of an option to changes in the factors that affect its value.
• discuss the Black model for valuing options on futures.
• compute the value of an option on a bond using the arbitrage-free binomial model.
• explain the limitations of applying the Black-Scholes model to valuing options on bonds.
• discuss the factors that affect the value of an option, or options on futures, for a fixed income instrument.
• compute the new floating-rate payments and value for a swap if interest rates change.
• calculate the swap rate, swap spread, and value of a swap.
• explain how the value of a swap is determined.
• explain how the swap rate and swap spread are determined.
• calculate the forward discount factor used to discount the swap payments given the forward rates.
• justify the appropriate interest rate to use in calculating the present value of the payments in an interest rate swap.
• compute the floating-rate payments in an interest rate swap given the futures price of a Eurodollar CD futures contract.
• explain the complications in extending the standard arbitrage pricingmodel to the valuation of Treasury bond and Treasury note futures contracts.
• explain how the theoretical price of a Treasury bond futures contract is affected by the delivery options.
• compute the theoretical price of an interest rate futures contract.
• compute the profit or loss generated in a cash and carry trade and in a reverse cash and carry trade using futures.
How do you think the COVID-19 pandemic will inuence the physical layout of ofce spaces in the future? How could these changes inuence organizational culture? Similarly, how do you think a move toward more remote work will affect organizational culture?
What type of a company do you feel would be a good t for you? What type of a culture would be a mist for you? In your past work experience, were there any moments when you felt that you did not t with the organization? Why?
What are some methods companies use to aid with employee onboarding? What is the importance of onboarding for organizations?
What is the inuence of company founders on company culture? Give examples based on your personal knowledge.

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Organizational Behavior Bridging Science And Practice Version 4 0 4th Edition Talya Bauer, Berrin Erdogan - Solutions

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