Purchase Solution

Valuation of Bonds & Stocks

Not what you're looking for?

Ask Custom Question

1. Distinguish between the types of bonds. What factors determine their value? Explain three important relationships that exist in bond valuation.

2. Distinguish between preferred stock and common stock. Compare valuing preferred stock and common stock.

Purchase this Solution
Solution Summary

The solution answers the valuation of bonds and stocks in 589 words with four sources cited.

Solution Preview

Question 1

The different types of bonds are:
• Senior bonds which are secured obligations because they're backed by property that acts as collateral, for example Mortgage bonds (secured by real estate), equipment trust certificates (backed by equipment, popular with railroads and airlines).
• Junior bonds which are backed only with a promise by the issuer to pay timely interest and principal.
• Debenture bonds are unsecured bonds issued as notes (2-10 yr maturity), no collateral.
• Treasury bonds—aka Treasuries or governments. They are backed by the full faith and credit of the US government. Treasury notes have 2, 3, 5 or 10 yr maturities while Treasury bonds have 30 yr maturities.
• TIPS--Treasure Inflation-Protected Security, is a Treasury inflation-indexed bond. The maturity is 5, 10, or 20 yrs.
• Agency and Mortgage-Backed Bonds—issued by political subdivisions of the US government.
• Municipal bonds are issued by states, counties, cities, school districts. These ...

Solution provided by:
J Pye, MSc
Education
  • MSc, California State Polytechnic University, Pomona
  • MBA, University of California, Riverside
  • BSc, California State Polytechnic University, Pomona
  • BSc, California State Polytechnic University, Pomona
Recent Feedback
  • "Excellent work. Well explained."
  • "Can you kindly take a look at 647530 and 647531. Thanks"
  • "Thank you so very much. This is very well done and presented. I certainly appreciate your hard work. I am a novice at statistics and it is nice to know there are those out there who really do understand. Thanks again for an excellent posting. SPJ"
  • "GREAT JOB!!!"
  • "Hello, thank you for your answer for my probability question. However, I think you interpreted the second and third question differently than was meant, as the assumption still stands that a person still independently ranks the n options first. The probability I am after is the probability that this independently determined ranking then is equal to one of the p fixed rankings. Similarly for the third question, where the x people choose their ranking independently, and then I want the probability that for x people this is equal to one particular ranking. I was wondering if you could help me with this. "
Purchase this Solution
Free BrainMass Quizzes
Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

View More Free Quizzes
Related BrainMass Solutions

  • Estimating Factors for a Valuation Model

    to derive for common stocks than for bonds?

  • Bond and Stock Valuations

    Thus, the risk premium associated with these bonds would be less than what it would be for other companies. 2. Stock Valuation: A similar concept applies to these companies stocks.

  • Corporate Bonds vs Preferred Stocks

    How does the valuation of a corporate bond compare with the valuation of preferred stock? 1. Although corporate bonds have lower total annual returns per year than common stocks, corporate bonds are not risk free.

  • Finance questions

    5-7: Bond Valuation with Semiannual Payments. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $ 1,000, and a yield to maturity of 8.5%.

  • Valuation of a Stock and Bond

    The bonds you are valuing have 3 years to maturity, a 4% annual coupon, and a face value of US$1,000. The market interest rates are 5%. Use Microsoft Excel to calculate the value of the stocks and the bonds.

  • Bonds and Stocks - US and Euro Bonds

    151342 Bonds and Stocks - US and Euro Bonds What are bonds? How is the value of a bond calculated? What is the yield to maturity (YTM), and how is it used in bond valuation? Compare the Eurobond to US government bonds.

  • Behavioral Finance

    Had the investors being using valuation models like the DCF methods, the dot.com bubble would not have taken place. Investors were buying stocks that were making losses! Interest rates also affect the prices of stocks.

  • Finance: Which kind of retirement plan assets; 3 important principles of finance

    Between Stocks, Mutual funds, and/or bonds, for the selection of my retirement plan, I will opt for bonds as at the age of retirement, everyone wants his money safe. While investing in stocks, there would be high risk.

  • Growth and Return on Invested Capital, Required Rate of Return, Competition

    stocks one can make abnormal profits but this is not possible in case of bonds.prices of bonds does not fluctuate much so one can make little amount of profits.but bonds are safer than stocks. 5.

View More Related Solutions