M107 Fixed Income, Derivatives and Alternative Investment Coursework

ORDER THE PAPER NOW

M107 Fixed Income, Derivatives and Alternative Investment Coursework
Sam Strother and Shawna Tibbs are vice-presidents of Mutual of Seattle Insurance Company and co-directors of the company’s pension fund management division.
A new client, the Northwestern foundation, had requested that Mutual of Seattle to give suggestion on the three corporate bonds they are planning to add to their existing portfolio. These are:
• LinkedIn Corporation;
• Morgan Stanley (NYSE:MS)
• United Rentals (North America), Inc.
The current portfolio of Northwestern foundation holds a large proportion in domestic equities, international equities and hedge funds. Sam Strother is concerned with the foundation having such a large percentage in risky and potentially illiquid equity investment. And suggested Northwestern foundation add some high quality bonds to reduce their risk exposure.
The Northwestern has requested that Mutual of Seattle present an investment seminar, and Strother and Tibbs, who will make the actual presentation, have asked you to help them by answering the following questions.
a. What are the key features of these bonds?
(15 marks)
b. What are call provisions and sinking fund provisions? Do these provisions make bonds more or less risky?
(10 marks)
c. What are these company’s bond rating? What factors may possibly affect the company’s bond rating?
(10 marks)
d. Based on your own analysis, would you consider these bonds investment grade or junk bonds? Which one would you recommend Northwestern foundation to invest?
(25 marks)
Part B: based on the UK gilt case study, please answer the following questions.
e. What is the difference between government bonds and corporate bonds, explain the potential risk of investing in each type of bonds?
(5 marks)
f. Using Exhibit 1 in the case, fill in the missing value.
(9 marks)
g. Plot the yield curve that results from the given bond.
(2 marks)
h. How a bond price varies with the discount rate and coupon rate? What happens to the bond price if all the yield move up by 1%?
(18 marks)
i. What is interest rate (or price) risk? Explain using your calculation, which bond has more interest rate risk, a 1-year bond or a 10-year bond? Why?
(3 marks)
j. What is reinvestment rate risk? Which has more reinvestment rate risk, a 1-year bond or a 10-year bond?
(3 marks)
Requirement
The length should be no longer than 2,500 words. You need to provide data and valuation results in the appendix.
Only submissions submitted in Microsoft Word will be marked.
References and appendixes will not be included in the final word count.

ORDER THE PAPER NOW