Bond Package Share Package Assignment | Homework For You
Problem A large mutual fund is investigating the market to include new assets into options available There
Option 1: a bond package of a well-established company with high revenues and stable payouts. The data on the bood are the following is return is lower than the required return on equity of this company. Coupon s and are paid semiannually. Only 2 years are left till maturity
Option 2: a share package of the same company. The shares are traded on the ISE and you have summarized information about the UK financial market in the table below. Correlation of returns between the market and the company is 06. The standard deviation of returns for the company is The dividend per share has been fixed by top management 3 years o at the level of 45 and analysts do not have any reasons to assume that this amount will be changed
Instrument Price (t) Price (1) Standard deviation FTSE 7416 6505 UK govt 10SE 1012 bonds (gilts)
a. Describe the process of bond valuation specifically stating the parameters that are necessary to calculate the price in practice. (5 points)
b) Calculate the bond price. (3 points)
c) Describe the two main types of risks that are inherent in every stock Illustrate graphically and mathematically (4 points)
d) Calculate the stock price justifying all the assumption models that are used in your calculations (5 points)
e) Describe the value and size anomaly not captured by CAPM and describe the approach that can be used to capture both anomalies (8 points) Get Finance homework help today
