MC – Cat Bonds (catastrophe bonds)
Principles of Corporate Finance
Brealey, Myers, and Allen
13th Edition
When insurance companies issue Cat bonds, who do they share their risks with?
When insurance companies issue Cat bonds, who do they share their risks with?
When a firm sells an asset, in this case, an office building, but then leases the asset back in order to use it, this is called a what?
What is the most important difference between a corporate bond and a Treasury bond issued by the U.S. Treasury?
What does the seller of a forward contract agree to do?
Concept only: The value of a bond = ______ – ___________. You are given asset value, call option on assets, default-free bond, and value of put option on assets. What are words that would fit into the above?
We can think of the value of a corporate bond as Bond value without default +/- ______.
Determine what happens to the coupon rate, the bond price, and the yield to maturity if interest rates increase shortly after the bond is issued. Conversely, what happens if interest rates decrease shortly after the bond is issued?
If the coupon rate is higher than the yield to maturity, how will this affect the bond’s price? What happens to the bond price over its remaining maturity?
If rates rise, what happens to bond prices? If the yield is greater than the coupon, how does this impact the bond’s price? If the price is greater than par, then what is the relationship between the yield and coupon rates? Which sell for more, high-coupon bonds or low-coupon bonds? When interest rates change, do high-coupon bonds change proportionately more or less than low-coupon bonds?
Evaluate the following statements as true or false: