finance question dealing with bonds, coupon rate?

2) ( COUPON RATE)hawk Enterprises has bonds on the market making annual payments, with 16 years to maturity, and selling for $870. At this price, the bonds yield 7.5 percent. What must the coupon rate be on the bonds?

3) ( BONDS YIELD) Ngata Corp issued a 12-year bond 2 years ago at a coupon rate of 9.2 percent. The bonds make semiannual payments. If these bonds currently sell for 104 percent of par value, what is the YTM?

4)(CALCULATING REAL RATES OF RETURN) If treasury bills are currently paying paying 8% and the inflation rate is 4.5% , what is the approximate real rate of interest. The exact real rate?

11)(NOMINAL AND REAL RETURNS) An investment offers a 15% total return over the coming years. Bill bernanke thinks the total real return on this investment will be only 7%. What does bill believe the inflation rate will be over the next year?

13) (BOND PRICING) This problem refers to bond quotes in figure 7.3. calculate the price of the canada jun 01/13 to prove that it is 113.65 as shown.Assume today is febtuary 13,2009?

2 Answers

  • Anonymous
    8 years ago
    Favorite Answer

    I am 29, and I want to give you the best financial advice. Ratios exist in academics. They are tools used by institutional investors (those with hundreds of millions of dollars) in deciding stock picks in a well-diversified portfolio. They do not apply to small investors.

    In response to the other guy's advice... choose the one with the highest target price. Well, Enron had a then-current-market high target price even the day they filed for bankruptcy. Equity investments are way to risky for someone your age. Academically, you can determine a set of risks, and quantitatively determine the metrics that determine each risk, and use that to make a stock pick. And, despite your good effort, you can lose everything due to economic issues.

    What you have to understand is that stock prices are set by the market, and market prices are influenced by economic conditions. No metrics (ratios) will help you decide what is a good stock in this economy.

    If you were talking of the stock market in 1995, then you would have well-played those metrics to bet on Enron. If you sold in 1999, you would have made a lot of money (given that your tax planning was adequate). But your metrics would have failed you... your ratios would have lied to you... if you held on until 2000 and especially 2001.

    As a (professional) financial adviser told me -- an ex-Colonel in the military -- you need to start with cash savings, work up to FDIC-insured vehicles (CDs, etc.), and then take on some mutual funds and 401(k)-type retirement vehicles, and THEN -- worry about equities (stocks).

    If you want a personal experience, I invested $100,000 in a "diversified" set of five mutual funds when I was 17. One year later (2001 -- September 11 attacks happened), and I watched my investments fall 30%. Luckily, I had $80,000 in CD and cash holdings, so I could weather that storm. I then saw my mutual fund holdings regain their value. I sold all of them before 2008 due to purely personal reasons (e.g., I wanted to spend the money). Had I not made that decision, I would've seen a much greater drop, and I would still not have recouped my initial investment.

    And that was with mutual funds. When you start talking about equities, you are just playing a game of craps in Las Vegas. Do not be fooled by all of the academia -- the ratios, the metrics --

    Equity investments are a form of gambling, and the house always wins.

    A mutual fund is a type of gambling where the "house" is less likely to win due to diversification. And they also lose money when the economy tanks.

    You could use the PEG ratio to make equity investments with some idea that you will make money, if and only if you 1) make a substantial investment (i.e. $100,000) and, 2) know when to sell and when not to sell.

    That means you have to watch those stocks everyday, and have the fortitude to see losses and not sell, and see losses and know when to sell. That requires acumen, not ratios. Very few people have that, and only large investors have the capital available to use that strategy.

    The best way for you to have money is to SAVE IT -- even if it is in a glass jar on top of the fridge. Put money back and don't spend it. This is not the investing market/economy you want to enter at your age.

    Hate to be a naysayer, but I know this from experience.

    Good luck to you!

  • 5 years ago

    With penny stocks you can make 30 percent or 40 percent profit in a few days. Learn here

    The best strategy, if you do have experience type of return on a penny stock, is to sell the stock quickly.

    Of course, it’s easier said than done. The natural thing to want when you see an increase in stock price is to hold the stock and hope for an even larger increase.

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