Bonds and Their Valuation Mini-Case Essay

Sam Strother and Shawna Tibbs argon vice-presidents of Mutual of Seattle Insurance participation and co-directors of the companys pension fund management division. A study new client, the Northwestern Municipal Alliance, has requested that Mutual of Seattle present an enthronization seminar to the mayors of the represented cities, and Strother and Tibbs, who go away make the actual presentation, have asked you to help them by answering the following questions. Because the Boeing Company operates in one of the leagues cities, you are to work Boeing into the presentation.a.What are the key features of a bond? act1.Par or face value. We generally assume a $1,000 par value, notwithstanding par can be anything, and often $5,000 or more is used. With registered bonds, which is what are issued today, if you bought $50,000 worth, that amount would appear on the certificate.2.Coupon rate. The dollar coupon is the rent on the money borrowed, which is generally the par value of the bond. T he coupon rate is the one-year interest payment divided by the par value, and it is generally bushel at the value of r on the day the bond is issued.3.Maturity. This is the itemise of years until the bond matures and the issuer must repay the loan (return the par value).4.Issue epoch. This is the date the bonds were issued.5.Default risk is inherent in all bonds except treasury bondswill the issuer have the cash to make the promised payments? Bonds are rated from AAA to D, and the lower the military rating the riskier the bond, the higher its default risk premium, and, consequently, the higher its required rate of return.