How is convertible bond valuation different than traditional bond valuation?

July 8, 2024 No Comments

A: Convertible bonds have features of equity securities since they can be conditionally converted into shares. This makes them more sensitive to company-specific news and less sensitive to systematic economic conditions, at least when compared with traditional bonds. The valuation of a convertible bond must

How is the interest rate on a treasury bond determined?

July 8, 2024 No Comments

A: The yield of U.S. Treasury securities, including Treasury bonds (T-bonds), depends on three factors: the face value of the security, how much the security was purchased for and how long it is until the maturity of the security. Many external factors influence Treasury prices

How is the risk-free rate determined when calculating market risk premium?

July 8, 2024 No Comments

A: The risk-free rate is the rate of return of an investment with no risk of loss. Most often, either the current Treasury bill, or T-bill, rate or long-term government bond yield are used as the risk-free rate. T-bills are considered nearly free of default

How long are credit ratings valid?

July 8, 2024 No Comments

A: When a company, government agency or municipality issues any debt security, a credit rating is usually sought. The rating is published so investors can judge the creditworthiness of the issuer and determine more effectively the risks associated with investing in debt from that issuer.

How long has the U.S. run fiscal deficits?

July 8, 2024 No Comments

The United States began its history indebted, owing more than $70 million to the French and Dutch after the end of the Revolutionary War in 1783. However, the first actual fiscal deficit in the federal ledger was not run until the end of that decade.

How safe are money market accounts?

July 8, 2024 No Comments

A: Money market accounts are perfectly safe. Banks offer these accounts to consumers interested in earning slightly higher interest on their deposits than they would receive with standard checking and savings accounts. Consumers sometimes confuse money market accounts with money market funds. Both are relatively

If caught, what implications does money laundering have on a business?

July 8, 2024 No Comments

A: Money laundering is a multibillion dollar industry that impacts legitimate business interests by making it much more difficult for honest businesses to compete in the market since money launderers often provide products or services at less than market value. Where a financial institution or

If I buy a $1,000 bond with a coupon of 10% and a maturity in 10 years, will I receive $100 each year regardless of what the yield is?

July 8, 2024 No Comments

A: Simply put: yes, you will. The beauty of a fixed-income security is that the investor can expect to receive a certain amount of cash, provided the bond or debt instrument is held until maturity (and its issuer does not default). Most bonds pay interest

How does a bull market in stocks affect the bond market?

July 8, 2024 No Comments

A: Bonds and stocks compete for investment money at a fundamental level, which suggests that a strengthening equity market would attract funds away from bonds. This would tend to lower the demand for bonds; sellers would have to lower prices to attract buyers. Theoretically, the

How Does a Person Gain From an Investment?

July 8, 2024 No Comments

A: There are two main ways in which a person gains from an investment. The first is by capital gains, which is the difference between the purchase price and the sale price of an investment. The second is investment income, defined as the money paid

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