金融市场与金融机构基础第9章英文版答案.doc

ANSWERS TO QUESTIONS FOR CHAPTER 9 (Questions are in bold print followed by answers.) 1. Your broker is recommending that you purchase U.S. government bonds. Here is the explanation: Listen, in these times of uncertainty, with many companies going bankrupt, it makes sense to play it safe and purchase long-term government bonds. They are issued by the U.S. government, so they are risk free. How would you respond to the broker? U.S. Government bonds may be free of default risk, but they are not free from interest rate risk, which may cause the bond price to decline, resulting in a capital loss should the holder of bond sell it before maturity. Even then there is the inflation premium risk, which means that the principal may have less purchasing power at maturity than it does today. 2. You just inherited 30,000 shares of a company you have never heard of, ABD Corporation. You call your broker to find out if you have finally struck it rich. After several minutes, she comes back on the telephone and says: “I don’t have a clue about these shares. It’s too bad they are not traded in a financial market. That would make life a lot easier for you. ”What does she mean by this? If the shares are traded on the market, and if the market is efficient, the current price would denote the value of the stock. Without market price information, share value would have to be approximated through other time-consuming and less reliable methods. 3. Suppose you own a bond that pays $75 yearly in coupon interest and that is likely to be called in two years (because the firm has already announced that it will redeem the issue early). The call price will be $1,050.What is the price of your bond now, in the market, if the appropriate discount rate for this asset is 9%? PO = $75 (PVIFA) 2.09 + $1050 (PVIF) 2.09 = $75 X 1.7591 + $1050 X .8417 = $1015.72 4. Your broker has advised you to buy shares of Hungry Boy Fast Foods, which has paid a dividend of $1.00 per year for 10 years