Debentures

Debentures are unsecured bonds that are not backed by any security, mortgages, equipment or any asset, and it is because of this reason that debentures have higher yields compared to secured debt.

Subordinated debenture vs. senior debt

Subordinate debts have a higher risk compared to the senior debt because it is usually the last debt that is paid of incase bankruptcy or default situations, and thus because of the risk, it has a higher coupon rate, whereas the senior debt rank higher than other loans and securities making it less risky.

A callable bond vs. a non-callable bond

A callable has a higher yield rate and this is because it is riskier compared to non-callable bond as it can be easily called away from an investor when the interest rate fall, whereas for a non-callable bond, if the interest rates decline, the issuer must continue paying a high rate until the maturity of the bond.

Income bond vs. a conventional bond

Income bond guarantees a bondholder of higher coupon rates and this is because the bond holder is not assured of repayment whereas the conventional bonds are secured as an issuer is under contractual obligations to pay the holders.

Convertible bonds vs. conventional bond

Convertible bonds offer a wide range of services and has a higher level of security that can be easily converted to a common stock and for this reason it offers lower coupon rate, and in comparison, conventional bonds have higher yield rate.

A corporate bond rated AAA by S&P vs. a “junk bond”

Junk bonds are risky as they have very low credit rating and have a higher default risk, and for them to be desirable the issuers have to offer it with higher rates, ensuring that it is high yielding. Corporate bond rated AAA bonds on the other hand are offered by companies that have high credit worthiness and thus bonds have lower default risk, and thus the bonds have a lower yield bond rate.

Municipal bonds (which are free from most taxes) vs. taxable bonds

Municipal bond is a tax advantaged bond because it is not taxable and thus it offer a lower yield rate compared to taxable bonds which have higher yields rates based on the fact that they are exposed to state, local, and federal taxes.

4. (10 points) You purchased a 90-day maturity, $100,000 par value Treasury bill for $98,000.

• Calculate the annualized bank discount yield paid by the T-bill.
• If you sell it for $99,000 after 30 days, what is your holding period yield?
• If you sell it for $99,000 after 30 days, what is your holding period yield?

5. (Internet Activities; 15 points)

 

1. We know that if a corporation is so maximize shareholder wealth, the interests of the managers and the shareholders must be aligned. The simplest way to align these interests is to structure executive compensation packages appropriately to encourage managers to act in the best interests of shareholders through stock and option awards. However, has executive compensation gotten out of control? Take a look at the Executive Pay Watch Web site at http://www.aflcio.org/corporate-watch/paywatch to see to whom top salaries have gone (click on “Corporate Watch”à”Executive Paywatch” on the right-hand side of the page and then “100 Highest-paid CEOs”). What are the most recent total compensation packages for the head of Oracle (ORCL), Wal-mart (WMT), Wells Fargo (WFC), and Yahoo! (YHOO)?

Wal-Mart Stores	Douglas Mcmillon	$22,352,143
Oracle Corporation	Mark V. Hurd	$41,121,896
Yahoo	Marissa A. Mayer	$35,981,107
Wells Fargo & Company	Timothy J. Sloan	$13,014,714

 

1. Go to Yahoo! Finance (http://finance.yahoo.com) and enter the symbol for Google (GOOG) in the “Search for news, symbols, and companies” box at the top of the page. What price did it last trade at? What is the day’s price range for the stock? What is the closing change in the price of the stock, both in dollar and percentage terms? What is the stock’s 52-week price range? Now check out some of the links on the page. What kind of information listed there do you find interesting?

 

992. What price did it last trade at? 992.58
993. What is the day’s price range for the stock? 97 – 996.56
994. What is the closing change in the price of the stock, both in dollar and percentage terms?
995. Open: 77
996. Close: 15
997. Change:0.38 or 0.038%
998. What is the stock’s 52-week price range?

727.54 – 997.21

1. Now check out some of the links on the page. What kind of information listed there do you find interesting?

The most important link on the page is the analytics which the growth estimates of the company, earning per share trends and revisions, earnings history, earning estimate, and revenue estimate. The information is crucial because they inform the shareholders of the history Google’s earnings per share, and provide the revenue and profit margin, which enables the estimation of the earnings per share.