Securities Analysis HW 4

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1

Homework #4. (Due: Oct 29)

 

Name: (ID: )

 

 

 

1. You have been hired by a small pension fund to help them design a bond portfolio to fund a $10 million

obligation that will come due in 4 years. The managers of the fund would like to use 2 year zero coupon

bond along with their existing bond portfolio A that includes following three zero coupon bonds with the

corresponding portfolio weight:

Security 5 year zeros 7 year zeros 10 year zeros

Portfolio weight 25% 25% 50%

Suppose that the yield to maturity on all bonds is 5% (in other words, the yield curve is flat at 5%).

 

a) How much money do you have to invest today in the bond market to entirely fund your obligation?

 

 

 

 

 

 

 

b) What is the durations of current existing bond portfolio A and the obligation (due in 4 years).

 

 

 

 

 

 

c) How would you structure your holdings of the 2 year zero coupon bond and their existing portfolio A

so that you are protected against the risk of interest rate fluctuations? Please indicate the dollar amount

you would invest in each security.

 

 

 

 

2

2. You will be paying $10,000 a year in tuition expenses at the end of the next two years. Bonds currently

yield 8%.

 

a) What is the present value and duration of your obligation?

 

 

 

 

 

 

 

 

 

 

b) What maturity zero coupon bond would immunize your obligation?

 

 

 

 

c) Suppose you buy a zero coupon bond with value and duration equal to your obligation. Now suppose

that rates immediately increase to 9%. What happens to your net position (difference between the value

of bond and that of your tuition obligation)? What if rates fall to 7% (instead of 9%)?

 

 

 

 

 

 

 

 

 

 

 

 

 

3. A 20-year maturity bond pays interest of $90 once per year and has a face value of $1,000. Its yield to

maturity is 10%. You expect that interest rates will decline over the upcoming year and that the yield to

maturity on this bond will be only 8% a year from now. What is the return you expect to earn by holding

this bond over the upcoming year?

 

 

 

3

4. In the bond market, we find the following Treasury bonds and their prices.

Bond price $980 $98 $96

Maturity 2 years 1 year 2 years

Face value $1,000 $100 $100

Coupon rate 10% 0% 0%

 

a) Compute the YTMs for the above three bonds.

 

 

 

 

 

 

 

 

 

b) Using the two zero coupon bonds, compute the forward rate that is applied for the period from the

end of Year 1 to the end of Year 2.

 

 

 

 

 

 

c) Suppose that we need the above coupon bond for your cash requirements. However, due to some

reasons, we cannot buy the coupon bond. Therefore, instead of the coupon bond, we decide to buy 1 year

and 2 year zero coupon bond. If this alternative investment has the same cash flows as the coupon bond,

how many bonds we need to buy (i.e., XX 1 year bonds and OO 2 year bonds)? What is the cost for this

alternative bond investment?

 

 

 

 

 

 

4

d) Using your work in question 3), is there an arbitrage opportunity? If any, how can we transact for

arbitrage? Compute the arbitrage profits. (for this question, we can assume that we can transact the

coupon bond.)

 

 

 

 

 

 

 

5. You are in charge of the bond trading and forward loan department of a large investment bank. You

have the following YTM’s for five default-free pure discount bonds as displayed on your computer terminal:

Years to Maturity 1 2 3 4 5

YTM� 0.06 0.065 0.07 0.065 0.08

Where YTM� denotes the yield to maturity of a default free pure discount bond (zero coupon bond)

maturing at year j.

 

a) A new summer intern from Harvard has just told you that he thinks that 3 year treasury notes with

annual coupons of $100 and face value of $1,000 are trading for $1,000. Would you ask the intern to

recheck the price of this coupon bond? If so, why? If there is one actually traded for $1,000, how would

you take this opportunity?

 

 

 

 

 

 

b) A client approaches you looking for an annualized quote on a forward loan of $5 million dollars to be

received by the customer at the end of the third year and she will repay the loan at the end of the fifth

year. How would you structure your holdings of pure discount bonds so you can exactly match the future

cash flows of this loan? Please indicate the number of bonds to be purchased or sold and the involved

cost/benefit in dollar terms. What is the corresponding annualized forward interest rate you quote for

your client?

 

 

 

 

 

 

 

 

 

 

5

c) Suppose that you purchased the bond in part 1(a) at the price you calculated. It is now one year later

and you just received the first coupon payment on the bond. At this time, the yield to maturities up to 3

year pure discount bonds are

Years to Maturity 1 2 3 4 5

YTM� 0.08 0.095 0.09 0.075 0.06

If you were to sell the bond now, what rate of return would you realize on your investment in the bond?

 

 

 

 

 

 

 

 

 

 

 

 

 

6. Florida Enterprise has bonds on the market making annual payments, with the eight-year maturity, a

par value of $1,000, and selling for $948. At this price, the bonds yield 5.9%. What must the coupon rate

be on the bond?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

7. Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 8.5%, has a

YTM of 7%, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This

bond pays a coupon rate of 7%, has a YTM of 8.5%, and has 13 years to maturity. What is the price of each

bond today? If interest rates are unchanged, what do you expect the price of these bonds to be one year

from now? In three years? In eight years? In 12 years? In 13 years? Illustrate your answers by graphing

bond prices versus time to maturity.

 

 

 

7

8. Winter Time Adventures is going to pay an annual dividend of $2.60 a share on its common stock a

year from now. Yesterday, the company paid a dividend of $2.50 a share. The company adheres to a

constant rate of growth dividend policy. What will one share of this common stock be worth 11 years

from now if the applicable discount rate is 8.0 percent?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9. Panther Corp. stock currently sells for $68 per share. The market requires a returns of 11% on the

company’s stock. If the company maintains a constant 3.75% growth rate in dividends, what was the

most recent dividend per share paid on the stock?

 

 

 

 

 

 

8

10. International Corp. currently has an EPS of $4.04, and the benchmark PE for the company is 21 (the

benchmark PE can be the PE ratio of comparable companies). Earnings are expected to grow at 5.5% per

year.

 

a) What is your estimate of the current stock price?

 

 

 

 

 

 

 

b) What is the target stock price (i.e., forecasted stock price) in one year?

 

 

 

 

 

 

 

 

 

c) Assuming the company pays no dividend, what is the implied return on the company’s stock over the

next year? What does this tell you about the implicit stock return using PE valuation?

 
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Cost Control Ch 7

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Q 1

Chapter 7, Question 1
Week Original Cost of Labor Raise in Dollars Total Cost of Labor Sales Labor Cost %
1 $10,650 $27,600
2 12,075 $32,250
3 10,887 $28,650
4 10,383 $37,200
Total
&L&12Chapter 7 Q 1
Can she give the employees what they want and still make a profit? Answer:

Q 2

Chapter 7, Question 2
Operating Results for Joe Bob’s
Week Number of Guests Served Labor Hours Used
1 7,000 4,000
2 7,800 4,120
3 7,500 4,110
4 8,000 4,450
Total 30,300 16,680
Question 2.a.
Average Guest Check $12
Average Wage per Hour $8
Total Sales
Total Labor Cost
Productivity Measurement Productivity Standard
Labor Cost Percentage
Sales per Labor Hour
Labor Dollars per Guest Served
Guests Served per Labor Dollar
Guests Served per Labor Hour
Question 2.b.
Labor Category % of Labor Hours Used Labor Hours Sales per Labor Hour
Meat Production 25%
Bakery Production 15%
Salad Production 10%
Service 20%
Sanitation 20%
Management 10%
Total 100%
Question 2.c.
Day Forecasted Number of Guests Served Guests Served per Labor Hour Standard Labor Hours Budget
1 900
2 925
3 975
4 1,200
5 1,400
6 1,600
7 1,000
Total 8,000
&L&12Chapter 7 Q 2

Q 3

Chapter 7, Question 3
Six-Column Labor Cost Percentage
Unit Name: Mikel’s Steak House Date: 3/1 – 3/7
Cost of Labor Sales Labor Cost %
Weekday Today To Date Today To Date Today To Date
1 $950 $2,520
2 $1,120 $2,610
3 $1,040 $2,720
4 $1,100 $2,780
5 $1,600 $3,530
6 $1,700 $4,100
7 $1,300 $3,910
Total
&L&12Chapter 7 Q 3
Mikel wants to keep his labor cost % at 37%. Given the results of his six-column daily productivity report for the first week of March, will he be able to achieve his labor cost % standard if he continues in the same manner for the remainder of the month? If not, what actions can he take to reduce both his fixed and variable labor-related expense? Answer:

Q 4

Chapter 7, Question 4
Servers: Guests Per Labor Hour
Buspersons: Guests Per Labor Hour
Volume/Staff Forecasting for Saturday
The Baroness
Time Forecasted Number of Guests Served Server Hours Needed Busperson Hours Needed
11:00 – 12:00 85
12:00 – 1:00 175
1:00 – 2:00 95
2:00 – 3:00 30
3:00 – 4:00 25
4:00 – 5:00 45
5:00 – 6:00 90
6:00 – 7:00 125
7:00 – 8:00 185
8:00 – 9:00 150
9:00 – 10:00 90
10:00 – 11:00 45
Total 1,140
&L&12Chapter 7 Q 4
How often in the night should Jeffrey check his volume forecast in order to ensure that he achieves his labor productivity standards and thus is within budget at the end of the evening? Answer:

Q 5

Chapter 7, Question 5
Sales Labor Cost Labor Cost Percent
Week Budget Actual % of Budget Budget Actual % of Budget Budget Actual
1 $2,500 $2,250 $875 $900
2 1,700 1,610 595 630
3 4,080 3,650 1,224 1,300
4 3,100 2,800 1,085 1,100
5 2,600 2,400 910 980
Total
&L&12Chapter 7 Q 5
Do you feel that Steve has significant variations from budget? Why do you think Steve’s boss assigned Steve a lower labor cost % goal during week 3? How do you feel about Steve’s overall performance? What would you do if you were Steve’s boss? If you were Steve? Answer:

Q 6

Chapter 7, Question 6
Sales Cost of Labor Labor Cost %
California
Store 1 $91,000.00 $34,500.00
Store 2 $106,500.00 $38,750.00
Store 3 $83,500.00 $31,500.00
Total
Oregon
Store 1 $36,800.00 $12,250.00
Store 2 $61,000.00 $18,750.00
Store 3 $52,000.00 $17,500.00
Total
Washington
Store 1 $47,500.00 $14,750.00
Store 2 $46,500.00 $15,000.00
Store 3 $45,500.00 $15,000.00
Total
Nevada
Store 1 $53,000.00 $17,250.00
Store 2 $56,000.00 $18,500.00
Store 3 $55,100.00 $17,250.00
Total
Region
&L&12Chapter 7 Q 6
Can Jordan compute the average labor cost percentage for her region by summing the labor cost percentages of the four states and dividing by four? Why or why not? How is the overall labor cost percentage for her region computed? Answer:

Q 7

Chapter 7, Question 7
Hours Worked Pay Per Hour Pay Per Week Weeks in a Year Pay Before Benefits Benefits Annual Pay with Benefits
Alternative 1
Total
Alternative 2
Alternative 3
Total
&L&12Chapter 7 Q 7
Which of these three courses of action will cost the facility the most money? The least? If you were Ravi, which of these alternatives would you implement? Why? Answer:

Q 8

Chapter 7, Question 8
Hour Available Seats Guests Served Check Average Revenue RevPASH Allowable Cost Based on 30% Labor Cost
5- 6 p.m. 50
6- 7 p.m. 100
7- 8 p.m. 150
8- 9 p.m. 175
9-10 p.m. 125
10-11 p.m. 75
Total
% Seats Sold =
&L&12Chapter 7 Q 8
a. What percentage of his total seats available does Luis believe he will fill on Friday night? What overall check average does he estimate he will achieve? Answers:   b. What would be Luis’s forecast for his hourly and overall RevPASH on this day? Answer:   c. What would be Luis’s labor budget for each hour his restaurant will be open, as well as the total amount that could be spent for labor that night? Answer:   d. What are some specific steps Luis might take to improve his RevPASH on Fridays from 5:00 – 6:00 p.m.? From 8:00 – 9:00 p.m.? Answers:
 
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Bonds issued by corporations that are exposed to default risk are called:

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QUESTIONS :

 

1. A long-term contract under which a borrower agrees to make payments of interest and principal on specific dates is called a:

 

 

 

a. common stock.

 

 

 

b. preferred stock.

 

 

 

c. equity contract.

 

 

 

d. bond.

 

 

 

 

 

 

 

 

 

 

 

2. Bonds issued by corporations that are exposed to default risk are called:

 

 

 

a. Treasury bonds.

 

 

 

b. municipal bonds.

 

 

 

c. corporate bonds.

 

 

 

d. personal bonds.

 

 

 

 

 

 

 

 

 

 

 

3.                      are issued by the Federal government and have no default risk.

 

 

 

a. Treasury bonds

 

 

 

b. Municipal bonds

 

 

 

c. Corporate bonds

 

 

 

d. Personal bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.                      are issued by state and local governments.

 

 

 

a. Treasury bonds

 

 

 

b. Municipal bonds

 

 

 

c. Corporate bonds

 

 

 

d. Personal bonds

 

 

 

 

 

 

 

 

 

 

 

5. The                           of a bond generally represents the amount of money the issuer promises to repay on the maturity date.

 

 

 

a. coupon interest rate

 

 

 

b. coupon payment

 

 

 

c. sinking fund

 

 

 

d. par value

 

 

 

 

 

 

 

 

 

 

 

6. The                           is the stated annual interest rate on a bond.

 

 

 

a. coupon interest rate

 

 

 

b. discount rate

 

 

 

c. yield-to-maturity

 

 

 

d. coupon payment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7. A bond that pays no annual interest but is sold at a discount below the par value is called:

 

 

 

a. an original maturity bond.

 

 

 

b. a floating rate bond.

 

 

 

c. a fixed maturity date bond.

 

 

 

d. a zero coupon bond.

 

 

 

 

 

 

 

 

 

 

 

8. A sinking fund provision in a bond contract gives the issuer the right to redeem the bonds under specific terms prior to the normal maturity date.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

9. The interest earned on most municipal bonds is exempt from federal taxes.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

10. If denominated in a currency other than the investor’s home currency, the purchase of foreign bonds adds the additional risk of changes in the relative value of the two currencies.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11. A call provision gives the investor the right to force the issuer to buy the bonds back before maturity.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

12. Convertible bond are bonds that may be converted (exchanged) into shares of common stock, at a fixed price, at the option of the bondholder.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

.

 

 

 

13. Other things held constant, if a bond indenture contains a call provision, the yield to maturity that would exist without such a call provision will generally be                        the YTM with a call provision.

 

 

 

a. Higher than.

 

 

 

b. Lower than.

 

 

 

c. The same as.

 

 

 

d. Either higher or lower (depending on the level of the call premium) than.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14. The value of a bond is the present value of the future cash flows from the bond (consisting of the par value at maturity and all intervening coupon payments).

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15.  If a coupon bond is selling at par, its current yield:

 

 

 

a. is less than its yield to maturity

 

 

 

b. equals its yield to maturity.

 

 

 

c. is greater than its yield to maturity

 

 

 

 

 

 

 

 

 

 

 

16. The rate of return earned on a bond if it is held until maturity is its:

 

 

 

a. yield-to-call.

 

 

 

b. coupon payment.

 

 

 

c. yield-to-maturity.

 

 

 

d. sinking fund yield.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17. The rate of return earned on a bond if it is called before its maturity date is its:

 

 

 

a. yield-to-call.

 

 

 

b. coupon payment.

 

 

 

c. yield-to-maturity.

 

 

 

d. sinking fund yield.

 

 

 

 

 

 

 

 

 

 

 

18. If a bond is selling for a premium, this implies that the bond’s yield to maturity:

 

 

 

a. exceeds its coupon rate.

 

 

 

yield-to-maturity must be larger than the coupon rate.

 

 

 

b. is equal to its coupon rate

 

 

 

c. is less than its coupon rate

 

 

 

 

 

 

 

 

 

 

 

19. All else equal, if a bond’s yield-to-maturity increases:

 

 

 

a. its price will rise

 

 

 

b. its price will remain unchanged

 

 

 

c. its price will fall.

 

 

 

 

 

 

 

 

 

 

 

20. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is most correct?

 

 

 

a. The bond’s yield to maturity is greater than its coupon rate.

 

 

 

b. If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850.

 

 

 

c. The bond’s current yield is equal to the bond’s coupon rate.

 

 

 

sells at par.

 

 

 

d. All of the statements above are correct.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21. All else equal,                     bonds have more interest rate risk than                      bonds.

 

 

 

a. short-term; long-term

 

 

 

b. callable; municipal

 

 

 

c. long-term; short-term

 

 

 

d. non-callable; corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22. All else equal, _______________ bonds have more reinvestment rate risk than ____________ bonds.

 

 

 

a. high-coupon; low-coupon

 

 

 

b. low-coupon; high-coupon

 

 

 

c. non-callable; corporate

 

 

 

d. callable; municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23.                    is the risk that a decline in interest rates will lead to a decline in income from a bond portfolio.

 

 

 

a. investment horizon

 

 

 

b. sinking fund

 

 

 

c. reinvestment rate risk

 

 

 

d. market risk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24. All else equal, short-term bonds have more reinvestment rate risk than do long-term bonds.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25. Which of the following bonds will have the greatest percentage increase in value if all interest rates decrease by 1 percent?

 

 

 

a. 20-year, zero coupon bond.

 

 

 

b. 10-year, zero coupon bond.

 

 

 

c. 20-year, 10 percent coupon bond.

 

 

 

d. 20-year, 5 percent coupon bond.

 

 

 

 

 

 

 

 

 

 

 

26. Which of the following statements is most correct?

 

 

 

a. Junk bonds typically have a lower yield to maturity relative to investment grade bonds.

 

 

 

b. A debenture is a secured bond that is backed by some or all of the firm’s fixed assets.

 

 

 

c. Subordinated debt is paid before senior debt in the event of default.

 

 

 

d. All of the statements above are correct.

 

 

 

e. Neither of the statements above is correct.

 

 

 

 

 

 

 

 

 

 

 

27. A company’s bond rating is not affected by its financial performance and provisions in the bond contract.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

28. Bonds are traded primarily in the over-the-counter market.

 

 

 

a. True

 

 

 

b. False

 

 

 

 

 

 

 

 

 

 

 

29. You are considering buying bonds in ACBB, Inc.  The bonds have a par value of $1,000 and mature in 40 years.  The annual coupon rate is 9.0% and the coupon payments are annual.  If you believe that the appropriate discount rate for the bonds is 20.0%, what is the value of the bonds to you?

 

 

 

a. $2,183.31

 

 

 

b. $540.31

 

 

 

c. $450.37

 

 

 

d. $2,376.94

 

 

 

e. $499.84

 

 

 

 

 

 

 

 

 

 

 

30. XZYY, Inc. currently has an issue of bonds outstanding that will mature in 23 years.  The bonds have a face value of $1,000 and a stated annual coupon rate of 13.0% with annual coupon payments.  The bond is currently selling for $804.  The bonds may be called in 3 years for 113.0% of the par value.  What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity?

 

 

 

a. 26.65%

 

 

 

b. 16.30%

 

 

 

c. 14.85%

 

 

 

d. 19.39%

 

 

 

e. 34.11%

 

 

 

 

 

 

 

 

 

 

 

31. Again, Inc. bonds have a par value of $1,000, a 20 year maturity, and an annual coupon rate of 13.0% with annual coupon payments.  The bonds are currently selling for $898.  The bonds may be called in 6 years for 113.0% of par.  What quoted annual rate of return do you expect to earn if you buy the bonds and company calls them when possible?

 

 

 

a. 14.59%

 

 

 

b. 17.26%

 

 

 

Correct. N=6; PV=-898; FV=1130; PMT=130; Solve for I.

 

 

 

c. 18.97%

 

 

 

d. 15.75%

 

 

 

e. 14.74%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32. Within Year, Inc. has bonds outstanding with a $1,000 par value and a maturity of 39 years.  The bonds have an annual coupon rate of 8.0% with semi-annual coupon payments.  You would expect a quoted annual return of 9.0% if you purchased these bonds.  What are the bonds worth to you?

 

 

 

a. $892.48

 

 

 

b. $892.74

 

 

 

c. $1,119.13

 

 

 

d. $908.85

 

 

 

e. $1,752.67

 

 

 

 

 

 

 

 

 

 

 

33. Yes They May, Inc. has a bond issue outstanding with a $1,000 par value and a maturity of 20 years.  The bonds have an annual coupon rate of 20.0% with semi-annual coupon payments.  The current market price for the bonds is $876.  The bonds may be called in 5 years for 120.0% of par.  What is the quoted annual yield-to-maturity for the bonds?

 

 

 

a. 31.16%

 

 

 

b. 11.44%

 

 

 

c. 13.39%

 

 

 

d. 26.77%

 

 

 

e. 22.87%

 

 

 

 

 

 

 

 

 

 

 

34. Yes They Can, Inc. has a bond issue outstanding with a $1,000 par value and a maturity of 34 years.  The annual coupon rate is 11.0% with quarterly coupon payments.  The bonds are currently selling for $1,054.  The bonds may be called in 4 years for 111.0% of par.  What is the quoted annual yield-to-call for these bonds?

 

 

 

a. 2.88%%

 

 

 

b. 14.93%

 

 

 

c. 11.50%

 

 

 

d. 2.60%

 

 

 

e. 10.42%

 

 

 

 

 

 

 

 

 

 

 

35. You are considering buying bonds in AZYX, Inc.  The bonds have a par value of $1,000 and mature in 11 years.  The annual coupon rate is 14.0% and the coupon payments are annual.  The bonds are currently selling for $775.68 based on a yield-to-maturity of 19.0%.  What is the bond’s current yield?

 

 

 

a. 10.86%

 

 

 

b. 14.00%

 

 

 

c. 19.00%

 

 

 

d. 24.49%

 

 

 

e. 18.05%

 

 

 

 

 

 

 

 

 

 

 

36. You are considering buying bonds in AZYX, Inc.  The bonds have a par value of $1,000 and mature in 11 years.  The annual coupon rate is 14.0% and the coupon payments are annual.  The bonds are currently selling for $775.68 based on a yield-to-maturity of 19.0%.  What is the bond’s expected capital gain/loss if the bonds are held until maturity?

 

 

 

a. 8.14%

 

 

 

b. 5.00%

 

 

 

c. 0.00%

 

 

 

d. -5.49%

 

 

 

e. 0.95%

 

 

 

 

 

 

 

 

 

 

 

37. XZYY, Inc. currently has an issue of bonds outstanding that will mature in 25 years.  The bonds have a face value of $1,000 and a stated annual coupon rate of 11.0% with annual coupon payments.  The bond is currently selling for $1000.  What is the yield-to-maturity for the bonds?

 

 

 

a. 8%

 

 

 

b. 9%

 

 

 

c. 10%

 

 

 

d. 11%

 

 

 

e. 12%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38. One year ago, Paul purchased a $1,000 face value corporate bond with a 12 percent annual coupon rate and a 10-year maturity. At the time of the purchase, the bonds had an expected yield-to-maturity of 10.5 percent. Today he sold the bond for $1125.  What is the one-year return that Paul earned on this investment?

 

 

 

a. 3.2%

 

 

 

b. 11%

 

 

 

c. 12%

 

 

 

d. 14.2%

 

 

 

e. 17.3%

 

 

 

 
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International Market Exit Strategies(Ikea)

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Assignment 1: Individual Research and Short Paper—Exiting International Markets

When companies exit markets, they need to consider the legal and social aspects in order to avoid complications with stakeholders such as labor, local municipalities, vendors, and taxing authorities. Through this assignment, we will review some of the regulatory issues multinational companies need to consider when exiting foreign markets.

At times, foreign companies realize that staying in a specific country may not be the right course of action. When Mercedes decided to sell its stake in Chrysler in the U.S., both companies had major stakes in exiting so that all stakeholders would benefit. Refer to following Web site to learn more.

Select an MNC that decided to exit all or a portion of its investment in the U.S. marketplace as your focus. Using news article archives, research the company’s strategy and write responses to the following questions:

  1. Who become new stakeholders when companies choose to exit a country?
  2. What are some of the regulatory matters that need to be addressed?
  3. Did your selected MNC exit the market entirely or are they still doing business using other venues, including distribution and sales with other product lines? Explain.
  4. What were some of the MNC’s considerations as they exited these markets?

Write a 4-page report in Word format. Apply current APA standards for writing to your work.
Use the following file naming convention: LastnameFirstInitial_M3_A1.doc.

By Wednesday, May 22, 2013, submit your assignment to the M3: Assignment 1 Dropbox.

Assignment 2: Course Project Task 3—International Market Exit Strategies(Ikea)

Just as companies need to use strategies when entering markets, strategies have to be devised when exiting markets. Exiting a market without a comprehensive strategy can result in increased costs and unintentional, negative publicity. For this part of the group project, we will focus on the issues associated with ceasing or limiting activities in countries and the regulatory concerns that need to be addressed.

Carry out individual research using the University online library resources and Internet resources. Then, in your group, discuss the following factors with your chosen MNC in mind. Use the information generated through this discussion for slides in your individual PowerPoint presentations. You should have 3 to 5 slides covering the regulatory requirements the client MNC might encounter when exiting international markets.

Consider the following for your research and discussion.

  1. What are some of the political and economic issues a company may face when exiting a specific country? How does the cost to move a company out of a country differ from the cost of continuing operations in that market? Cite specific examples to support your points.
  2. Identify at least five different local regulators a company would need to satisfy prior to exiting a country. Discuss which of these regulators would hold more authority. Give reasons to support your choice.
  3. Why do some countries regulate exiting firms more than other countries? What can companies do to anticipate these regulations?

Through the week, actively participate in the discussion analyzing the client MNC’s exit strategy and post your comments to the Discussion Area.

Discussion will be open through Friday, May 24, 2013. The designated scribe for this particular discussion will post a synopsis of discussion points and decisions to this Discussion Area by Saturday, May 25, 2013.

Module 3 Readings

Early in the week, complete the following:

· Read the overview for Module 3

· From the textbook, International business law and its environment, read the following chapters:

· Sales Contracts and Excuses for Nonperformance

· The Documentary Sale and Terms of Trade

· From the Argosy University online library resources, use the following as a supplemental text for topics in this module:

· Mack, C. S. Business strategy for an era of political change. Retrieved fromhttp://www.thecampuscommon.com/library/ezproxy/ticketdemocs.asp?sch=auo&turl=http://site.ebrary.com/lib/argosy/docDetail.action?docID=10005699&p00=business%20strategy%20political%20change (ebrary collection)

· From the Internet, read:

· Collaborative for Development Action, Inc. (2003, February). Corporate engagement project: Exit strategies. Retrieved from http://www.cdainc.com/publications/cep/issuepapers /cepIssuePaperExitStrategies.pdf

· Automotoportal. (2007, April). DaimlerChrysler to sell Chrysler group to Cerberus. Retrieved fromhttp://www.automotoportal.com/article/daimlerchrysler-to-sell-chrysler-group-to-cerberus

· U.S. Department of State. (n.d.). Doing business in international markets. Retrieved fromhttp://www.state.gov/e/eeb/cba/

· HLB International. (n.d.). Doing business in… (booklets). Retrieved from http://www.hlbi.com/DBI_list.asp

· The Economist Intelligence Unit: The Economist. (2006, November). Barriers to entry: Coping with protectionism. Retrieved from http://graphics.eiu.com/files/ad_pdfs/eiu_UKTI_protectionism.pdf

 
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