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FIN 390 Fixed Income Securities Analysis Full Course
FIN 390 WEEK 1 FIXED-INCOME SECURITIES
FIN 390 WEEK 2 WHAT ARE RATIOS, AND WHY ARE THEY IMPORTANT?
FIN 390 Final Course Project Guidelines
Students should select a company that has issued bonds in the last 3 years so that the information sources can provide sufficient financial data for analysis. The selection is subject to faculty approval: the company choice should be posted as early as possible in the first week.
Post the following.
- Your company choice
- The security chosen
- When that security was issued
It’s suggested that you work on at least one of each of the remaining milestones each week.
The Final Project is made up of the separate sections for each milestone listed below. Each section should be a minimum of two pages (excluding charts, graphs, etc.).You will be submitting these milestones each week for weeks 1 through 6. You will revise these milestones and submit your Final Project in Week 7.
- Papers should be 15 or more written pages in length, 10-point font, and double spaced. The paper should include a cover page, table of contents, introduction, body of the report, summary or conclusion, and works cited, graphs, and tables. These items are not part of the total page count.
- Even though this is not a scientific-type writing assignment and is mostly creative in nature, references are still very important. At least six authoritative, outside references are required (anonymous authors or web pages are not acceptable). These should be listed on the last page titled “Works Cited.”
- Appropriate citations are required utilizing the APA standard.
- All DeVry University policies are in effect, including the plagiarism policy.
- Any questions about this paper may be discussed in the weekly discussion topic.
- This paper is worth 210 total points and will be graded on quality of research topic and paper information, use of citations, grammar, and sentence structure. See the grading rubric below.
FIN 390 WEEK 6 QUIZ
Question 15 pts
(TCO 7) What is the primary risk that a bondholder faces?
| Risk of the issuing firm declaring bankruptcy | |
| A downturn in the economy causing the firm to lose money |
| Interest rate risk | |
| None of the above |
Question 25 pts
(TCO 7) To calculate a bond’s duration, you must
| average the present values of all the coupon payments. | |
| take a weighted average of the present values of all the cash inflows. |
| divide the face value by the PV of the coupon annuity. | |
| None of the above |
Question 35 pts
(TCO 7) Cash flow matching isn’t the ideal solution to reduce bond portfolio interest rate risk because
| some firms can’t afford to buy the extra zero-coupon bonds. | |
| the Federal Reserve may raise interest rates beyond the coupon rate. |
| this strategy puts constraints on the bonds that the investor may wish to buy. | |
| None of the above |
Question 45 pts
(TCO 7) Why do investors like convexity?
| Because the potential price drop is greater than price gain when yields rise | |
| Because the bonds displaying it are usually priced at a premium |
| Because they have more potential upside than potential downside | |
| None of the above |
Question 55 pts
(TCO 7) Passive bond managers prefer to
| manage the prices of the bonds in their portfolios. | |
| manage only the interest rate risk of their fixed-income securities. |
| Both of the above | |
| None of the above |
Question 65 pts
(TCO 9) Which of the following possible provisions of a bond indenture is designed to ease the burden of principal repayment by spreading it out over several years?
| Callable feature | |
| Convertible feature |
| Subordination clause | |
| Sinking fund |
Question 75 pts
(TCO 9) Bonds issued in the United States are _____, and most bonds issued overseas are
| bearer bonds; registered. | |
| Registered bonds; bearer bonds. |
| the covariance of the risk-free rate; the rate of inflation. | |
| None of the above |
Question 85 pts
(TCO 9) A convertible bond has a par value of $1,000 but its current market price is $950. The current price of the issuing company’s stock is $19, and the conversion ratio is 40 shares. The bond’s conversion premium is
| $50.00. | |
| $190.00. |
| $200.00. | |
| $240.00. |
Question 95 pts
(TCO 7) Bond portfolio immunization techniques balance _____ and
_____ risk.
| price; reinvestment | |
| price; liquidity |
| credit; reinvestment | |
| credit; liquidity |
Question 105 pts
(TCO 5) A perpetuity pays $100 each and every year forever. The duration of this perpetuity will be _____ if its yield is 9%.
| 7 | |
| 9 |
| 9.39 | |
| 12.11 |
Question 115 pts
(TCO 7) A company has current assets of: cash $500, accounts receivable $200, and inventory $400. The company also has current liabilities of: accounts payable $300 and notes payable $600. What is the company’s quick ratio?
| .78 | |
| .88 |
| .90 | |
| .55 |
Question 125 pts
(TCO 7) You earn 6% on your corporate bond portfolio this year, and you are in a 25% federal tax bracket and an 8% state tax bracket. Your after tax return is _____. (Assume that federal taxes are not deductible against state taxes and vice versa.)
| 4.5% | |
| 4.14% |
| 4.02% | |
| 3.12% |
FIN 390 WEEK 8 FINAL EXAM
Question 110 pts
(TCO 1) Which of the following is true about fixed-income securities?
| They are usually found on the income statement. |
| They are always found on the left side of the balance sheet. |
| They are usually shown on the right side of the balance sheet. |
| None of the above |
Question 210 pts
(TCO 2) The concept of risk versus return refers to
| the consideration of an investor’s portfolio weights being equal between risk-free and risky assets. |
| the fact that the yield curve is flat. |
| the fact that all investors expect less return for increasing amounts of risk. |
| None of the above |
Question 310 pts
(TCO 5) Which of the following is not true?
| YTM is always higher than the coupon rate. |
| Coupon rate will always exceed the dividend yield. |
| YTM is primarily of interest to investment bankers. |
| All of the above |
Question 410 pts
(TCO 3) Which of the following are or could be part of the buying, selling, and trading of corporate bonds?
| IPO process and shelf registration |
| Auction markets and dealer markets |
| Investment bankers |
| All of the above |
Question 510 pts
(TCO 5) What is the normal yield curve shape?
| Humped in the middle |
| Downward sloping to the right |
| Upward sloping to the right |
| None of the above |
(TCO 6) Portfolio diversification is all about which of the following?
| Maximizing the investor’s return |
| Minimizing the risk to the investor |
| Maximizing the return per unit of risk to the investor |
| None of the above |
Question 710 pts
(TCOs 1 and 8) What kind of securities would investors seeking a steady income probably look to?
| Common stock, Treasury bills, and corporate bonds |
| Preferred stock, Treasury bonds, and corporate bonds |
| Corporate bonds rated “bbb” only |
| None of the above |
Question 810 pts
(TCO 8) Who would normally be required to create a portfolio investment policy?
| Pension fund managers |
| 401k plan administrators |
| Large insurance companies |
| All of the above |
(TCO 4) Where could you find trend information about the bond market?
| Dow Jones Average |
| NASDAQ |
| S&P 500 |
| None of the above |
Question 1010 pts
(TCO 6) The yield on a corporate bond is 10%, and it is currently selling at par. The marginal tax rate is 20%. A par value municipal bond with a coupon rate of 8.50% is available. Which security is a better buy?
| Municipal bond |
| Both are equal |
| Corporate bond |
| A municipal bond carries no par |
Question 1120 pts
(TCO 6) What is the coupon rate needed on a $1,000 face value, 6% coupon corporate bond to make it equivalent in terms of return to one whose interest rate is tax free? Assume the corporate tax rate is 40%.
Question 1220 pts
(TCO 7) What would be the expected change to a 30-year bond’s market price or value if its YTM increases to 9.4%? Its YTM is now 9%, it has an 8% annual coupon, $1,000 face value, it is currently priced at $897.26, and its duration is 8 years.
Question 1320 pts
(TCO 2) Given the data below, calculate the expected return, variance, and standard deviation of the following company. In a recessionary economy, which is expected to occur with a 30% probability, the expected returns would be -5%.
In an expanding economy with an expected probability of occurrence of 20%, the expected return would be 20%.
In a normal economy, expected to occur 50% of the time, the expected return would be 5%.
Question 1420 pts
(TCO 6) Calculate the five ratios for the following company info.
Income Statement Balance Sheet
Revenue 10,000 Assets Liab. + OE
EBIT $2,000 cash $1,000 a/p $2,000
Interest $500 A/R $10,000 Bonds payable $50,000
Earnings B4 Tax $1,500 Equip $25,000 equity $84,000
EAT (at 30%) $1,050 Bldg $100,000
Total $136,000 $136,000
– return on sales
– ROA
– ROE
– fixed asset turnover
– times interest earned
Question 1520 pts
(TCOs 1, 5, and 6) Calculate the appropriate selling price of a 30-year 5% coupon, $10,000 Treasury bond that was purchased 5 years ago. Marketplace interest rates are averaging 8%.
Question 1620 pts
(TCOs 1, 8, and 9) An investor is looking to buy a bond that currently pays $155 a year in interest (coupon rate). The current yield is 11%, and the face value is $1,000. How much will the investor have to pay for this bond?
Question 1730 pts
(TCO 5) Explain the difference between active portfolio management and passive management.
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