1. Assume the following is the current order book on the pricing of Fincorp. stock: Bid Orders Ask Orders Price Order Size Price Order Size 72.50 400 72.55 300 72.45 900 72.60 800 72.40 2000 72.70 2000 (a) If you wanted to buy 1200 shares, how much would this cost if you submit a market order and pay a commission of $10 for the trade? Show your calculation (Note: you only have to pay one commission even if your trade is split into more than one transaction) (b) If you want to sell 500 shares at a price of 72.52, what type of order would you use and how would your trade be reflected in the order book above? Explain. 2. A 20 year maturity bond with par value $1,000 making semi-annual payments was issued 11 years ago with a coupon rate of 6.5%. (a) What is the price if the current yield to maturity is 7%? Show your calculation. (b) If the current price is $890, what is the yield to maturity? Show your calculation. 3. Masters Corp. has two bonds with 20 years remaining until maturity. Both bonds are unsecured and are callable at $1,050. Bond A was issued 20 years ago with a coupon rate of 7%. Bond B was issued 10 years ago with a coupon rate of 6.25%. If bonds with similar risk today are yielding about 6%, does the call feature affect the bonds prices? Calculate the prices and explain. 4. The following are yield to maturity figures for recent corporate bonds rated A. Bond with 1 year until maturity 1.5% Bond with 2 years until maturity 1.75% Bond with 3 years until maturity 2% Bond with 4 years until maturity 2.5% Bond with 5 years until maturity 3% Using these yields, find the forward rate for each year: f1, f2, f3, f4, f5. Show your calculation. 5. Rank the following bonds in order of descending duration (without doing any calculations): Bond Coupon Time to Maturity Yield to Maturity A 6% 30 years 7% B 6% 20 years 7% C 0% 30 years 7% D 6% 20 years 9% E 10% 30 years 7% Explain your ranking.

ASSIGNMENT 1 MGF 402 Investment Management Summer 2015 You may work in a group of up to 4 on this Assignment. Please indicate clearly on all submitted Assignments who the members of the group are. Please note, all assignments submitted with more than 4 group members will automatically receive a 0 grade. This Assignment is due on Thursday, June 4th at the beginning of class. No late assignments will be accepted. If you will not be able to attend class that day, please submit it before class by email to dmohr@buffalo.edu or at my office, 375A Jacobs (put Assignments under the door if I am not there). ________________________________________________________________________________________________________ 1. Assume the following is the current order book on the pricing of Fincorp. stock: Price 72.50 72.45 72.40 Bid Orders Order Size 400 900 2000 Price 72.55 72.60 72.70 Ask Orders Order Size 300 800 2000 (a) If you wanted to buy 1200 shares, how much would this cost if you submit a market order and pay a commission of $10 for the trade? Show your calculation (Note: you only have to pay one commission even if your trade is split into more than one transaction) (b) If you want to sell 500 shares at a price of 72.52, what type of order would you use and how would your trade be reflected in the order book above? Explain. 2. A 20 year maturity bond with par value $1,000 making semi-annual payments was issued 11 years ago with a coupon rate of 6.5%. (a) What is the price if the current yield to maturity is 7%? Show your calculation. (b) If the current price is $890, what is the yield to maturity? Show your calculation. 3. Masters Corp. has two bonds with 20 years remaining until maturity. Both bonds are unsecured and are callable at $1,050. Bond A was issued 20 years ago with a coupon rate of 7%. Bond B was issued 10 years ago with a coupon rate of 6.25%. If bonds with similar risk today are yielding about 6%, does the call feature affect the bonds prices? Calculate the prices and explain. 4. The following are yield to maturity figures for recent corporate bonds rated A. Bond with 1 year until maturity Bond with 2 years until maturity Bond with 3 years until maturity Bond with 4 years until maturity Bond with 5 years until maturity 1.5% 1.75% 2% 2.5% 3% Using these yields, find the forward rate for each year: f1, f2, f3, f4, f5. Show your calculation. 5. Rank the following bonds in order of descending duration (without doing any calculations): Bond Coupon A 6% B 6% C 0% D 6% E 10% Explain your ranking. Time to Maturity 30 years 20 years 30 years 20 years 30 years Yield to Maturity 7% 7% 7% 9% 7%