FSY TUT 6 Key - Quản lý tài chính | Trường Đại học Hà Nội
The answer may depend on the type of financial institution Lending institutions, commercial banks, saving institutions are expected to provide credit to creditworthy customers, and junk bonds may be viewed as a form of high risk. These institutions do not invest in junk bonds. Insurance companies may invest in junk bonds, but there is some concern that the confidence in insurance companies could be shaken if there are failures because of defaults on junk bonds held by insurance companies. Tài liệu được sưu tầm giúp bạn tham khảo, ôn tập và đạt kết quả cao trong kì thi sắp tới. Mời bạn đọc đón xem !
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lOMoARcPSD|47205411 lOMoARcPSD|47205411 TUT6: BOND MARKETS CHAPTER 7 #PCP
The answer may depend on the type of financial institution
Lending institutions, commercial banks, saving institutions are expected to provide credit to
creditworthy customers, and junk bonds may be viewed as a form of high risk. These
institutions do not invest in junk bonds.
Insurance companies may invest in junk bonds, but there is some concern that the
confidence in insurance companies could be shaken if there are failures because of
defaults on junk bonds held by insurance companies.
Perhaps the ideal type of institutional investor in junk bonds is a mutual fund, hedge fund
that specializes in investing in junk bonds, since the fund’s objective would be clearly
communicated to investors, and only those investors who wanted to accept the high risk
would invest in these types of mutual funds #AQ15
The financial problems of Merrito is a sign that other firms classified in the junk bond
category might also experience cash flow problems. Investors quickly sold their bonds
because of this issue, and other investors were no longer interested in purchasing these
bonds. The price had to decline to a new equilibrium, which reflects a higher yield that
provides a higher risk premium to investors who purchase the junk bonds under these conditions.
The impact on the bond prices would be more clear for those bonds that have less liquidity,
because there are fewer wil ing buyers to buy these bonds. Thus, the price has to decline
more to attract more buyers that would be wil ing to buy the bonds in the secondary market. Problem
After six months: the increase in principal amount due to increase in inflation by 1% = 0.01%*$1,000 = $10
=> the new principal = $1,000 + $10 = $1,010
=>The coupon payment, after the 6 months wil be 3% on the new par value = 0.03*$1,010= $30.3
In the next six months, the increase in principal due to an increase in inflation by 1% = (0.01 *$1,010) = $10.
=> the new principal = $1,010 + $10 = $1,020.1
the coupon payment in the next six month = (0.03* $1,020.1) = $30.6 =>
the total interest payments of the year = ($30.3 +$30.6) = $60.9
After six months: the decrease in principal amount due to deflation by 1% = 0.01%*$10,000 = $100
=> the new principal = $10,000 - $100 = $9,900
=>The coupon payment, after the 6 months wil be 2.5% on the new par value = 2.5%*$9,900 = $247.5
In the next six months, the decrease in principal due to deflation by 2% = (0.02 *$9,900) = $198
=> the new principal = $9,900 - $198 = $9,702
the coupon payment in the next six month = (2.5% * $9,702) = $242.55 =>
the total interest payments of the year = ($247.5 + $242.55) = $490.05 #FOF
a, Carson should buy a larger facility if it feels confident that it can ful y maximize productivity.
They should consider using up the excess capacity in its existing facility in the lOMoARcPSD|47205411
short term, and watching economic growth. In this way, it only needs to obtain short-term
financing, and can avoid long-term debt for now. If demand does not increase as expected,
then can simply retire the short-term debt when it matures.
Conversely, if Carson is confident that demand wil increase and continue to be strong in
the long run, it can issuing stock or bonds to raise funds to buy a larger facility that would
al ow for 50 percent more capacity
b, No, it does not imply that the cost of financing is the same because the yield curve is
recently upward sloping. It means that Carson can obtain ST financing with lower i/r than than LT financing
c, Yes, Carson should use cal provision if it issues bonds because Carson can mature
the bonds before its maturity if it needs to reduce it debt or to have lower i/r or to refinance at lower rates
However, Carson might need to pay higher rate to compensate to the bondholder if it
uses cal provision ( Cal provision may disrupt bondholder’s investment plan and reduce their return)
d, Carson can use private placement to reduce transaction cost. The primary investors of
private placement can be insurance company, pension funds. The yield is higher
because private placement can be traded in secondary market so the yield need to be
higher (including risk premium) to compensate for il iquidity and credit risk
e, Insurance company accommodates funds from insurance holders who pay premium for
their insurance. Then cpn uses this funds to invest in bonds
Pension funds also uses the fund from employee to purchase fund until the employees claim for their retirement