Project_FIN403

College of Administrative and Financial Sciences

Assignment 3

Suggested Role Division

For Instructors Use only

Important Guidelines -Please read carefully

General Instructions

Learning Outcomes:

After completion of Assignment, the students will be able to understand the following

CLO4:Demonstrate the valuation methods used for the valuation of the common forms of debt, equity, property, and derivative securities.

CLO5:Illustrate asset models of a stochastic nature that are appropriate to the management of liabilities.

The assignment consists of two parts:

Part 1: Assignment Questions (10 Marks)

A.Bond Selection and Interest Rate Expectations:

Should an investor who expects interest rates to decline seek low- or high-coupon bonds? Relate your answer to duration and price sensitivity.

B.Warrant Pricing and Investor Behavior:

Why do investors tend to pay a smaller premium for a warrant as the price of the stock goes up?

C.Stock vs. Options: Risk and Loss Analysis

Assume you wish to control the price movement of 100 shares of stock. You may buy 100 shares of stock directly or purchase a call option on the 100 shares. Which strategy is likely to expose you to the larger potential dollar amount of loss? Which strategy is likely to expose you to the larger potential percentage loss on your investment?

D.Hedging Strategies Using Financial Futures

How can using the financial futures markets for interest rates and foreign exchange help financial managers through hedging? Briefly explain and give one example of each.

Part 2: Presentation (10 Marks):

Presentation Guidelines

Each group will deliver a short presentation (up to 12 minutes) summarizing their report and key findings.

Four marks will be allocated for the overall quality, organization, and clarity of the presentation.

Three marks will be awarded based on each students ability to clearly explain their own section and respond to questions related to it.

Three marks will be awarded for each students understanding of the other sections prepared by group members, including the introduction and conclusion, demonstrated through answering related questions.

Note: Slides (6-8) used during the presentation should be included as images at the end of the report.

Answers

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