Investments Management - Alex Holds a Convertible Bond with a Market Value of $1700. If the Conversion Ratio Is 50 and the Stock’s Price Is $39 Per Share, Should He Convert the Bond or Sell the Bond

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INVESTMENTS MANAGEMENT

Q1) Suppose that there are two closed-end mutual funds, A and B. Both trade at $8, where the net asset value per share is $10. Fund A is a terminated fund. (A terminated fund is a fund with a termination date, the date at which the assets are liquidated and distributed to the shareholders. Its termination date is in 1 year from now. Fund B is not a terminated fund.
a. Calculate the premium or discount corresponding to these two funds.
b. Suppose that the net asset value of both funds will increase to $12 one year from now.
Calculate the rate of return to the investor in Fund A for this year. Can you calculate the rate of return corresponding to Fund B under these circumstances?

Q2) An ADR of Honda Motor is traded on the NYSE for $22. The exchange rate is 100 yen per dollar. Suppose that Honda Motor is trading in Japan for 2,500 yen. How can you use this information to make a profit? Explain.

Q3) Suppose a bond is sold for $1,000 and pays an annual interest rate of 10% on the par value, which is also $1,000. The bond was issued 20 years ago and will mature in one week. You own some of these bonds. The yield on these bonds suddenly goes way up, to 15%. Calculate your loss. Explain your results?

Q4) Suppose a bond has a par value of $1,000 and a market value of $1,100. It is convertible into 40 shares of stock, and the current stock price is $26.
a. What is the conversion ratio?
b. What is the conversion price?
c. What is the conversion value?

Q5) Suppose you buy a stock for $100. You receive $4 as a cash dividend at the end of the year. The stock price at the end of the year is $95.
a. What is the rate of return on your investment?
b. What is the dividend yield as measured…...

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