Case Study Fin
Reem Reemy
finance3.pdf
ALOGAIDI CASE STUDY 1
CASE STUDY
Institution
CASE STUDY 2
Case study: finance
Most of the investors focus on the stock markets since that is where big growth is
found. Investing in bonds helps in creation of a more balanced profile through strengthening
one’s portfolio risk. It is therefore very important to understand the stock market before
making any investments in order to gain maximum returns. A bond is a type of a loan which
is taking out by organizations. The shareholders lend organizations money through buying
the firm’s bond. In exchange of these loans which are given, the corporations are expected to
pay certain interests to the share holders in certain pre-determined intervals. Since every bond
is issued differently, it is essential to understand the precise terms prior to making any
investment.
There are various types of bonds including treasury, corporate and municipal bonds,
short, long and intermediate term bonds, investment-grade and high-yield bonds as well as
inflation –adjusted bonds. Some investors may decide to join the bond funds in order to have
better access to bonds which are best in investing in. It is important to understand that
although there are countless bond funds, only a few of them are the best and worth invest in.
the best bonds are those that have low expense ratio which optimizes the amount of bond
income lost to pay for the management of fund. These bonds have the largest amounts of
assists under management; hence the cost of the fund will be shared among the large group of
investors. An investor should consider the investment objective of the fund so as to ensure
that they share the same needs with the other investors (Hendershott & Seasholes, 2017)
CASE STUDY 3
In order to determine the best bond for you to make an investment in, you should first
consider the tax bracket which you fall under. If in any case the tax bill is big enough, it will
be wise to invest in the municipal bonds since the tax bill is lowest. The treasury bonds,
government bonds and corporate bonds diversify one’s stock portfolio through fixed incomes.
These three types of bonds are the best bonds to invest in as their rates of return are always
seen to be high in the stock markets. It is important to consider the bonds which are secured
so as to be risk averse (Duffee, 2018). The unsecured bonds are highly risky since their
interest payments and return of principal are guaranteed only by the credit of the issuing firm.
In any case when the firm fails, the investor gets little of their investment back. Therefore
security of a bond is important in order to reduce the risk of losing the capital which one has
invested. An investor is also expected to consider making investments in bonds which are
highly liquid (Cieslak, 2018)
I believe that one of the best bonds is the Treasury bond. This is a government debt
security which is expected to earn an interest until it matures and then the owner receives a
payment of money amounting to the capital they had put. These kinds of bonds are
categorized as government bonds since the national government issues them with an
agreement that the investors will receive interest payments until the bond matures
(Ehrmann.et.al, 2017). These bonds have fixed interest and are marketable. The interest
payments are made semi annually and the returns gotten are only taxed at national level. They
are said to be free of risk as they are issued by the government. The maturity of treasury
bonds is said to range between ten to thirty years. These bonds are highly liquid since
secondary markets exist which are also capable of making their prices fluctuate (Baur &
Lucey, 2017)
CASE STUDY 4
Making investments in these bonds is a good thing to do while focusing on long term
investment which is what many investors look forward to. The treasury bonds offer a
long-term period of maturity which makes it possible for investors to acquire a huge amount
of interest while at the same time there is exemption of municipal taxes on the income one
gets. This makes it very advantageous for one to make investment in such bonds.
Additionally, these bonds are highly liquid as they can be sold in the secondary market which
is a good thing since one can easily sell them and get their capital with additionally interest
since their prices in the secondary markets are mostly high (De Bondt & Thaler, 2015). Due
to the fact that these bonds are sold by the government, they are mostly risk free since there is
no time when the government can be bankrupt unlike the corporate bonds in the private
sector which may result in huge losses once a firm is bankrupted. The tax exemption of the
income gained from these bonds enables the investors to gain maximum returns unlike other
bonds which are taxed in both the state and national level (Lux & Marchesi, 2016)
In conclusion, making an investment is a decision that is an easy decision. The big
part lies with the kind of an investment that one plans to make. It is therefore crucial to
evaluate the stock exchange market before making any investment so as to as the liquidity,
tax status, risk, pricing of the bonds that one chooses. There are various bonds which are
categorized depending on various factors. Government bonds are the best bonds to make
investment in since they are highly liquid, risk free, have exemptions of tax and their maturity
period is long.
CASE STUDY 5
References
Baur, D. G., & Lucey, B. M. (2017). Is gold a hedge or a safe haven? An analysis of stocks,
bonds and gold. Financial Review, 45(2), 217-229.
Cieslak, A. (2018). Short-rate expectations and unexpected returns in treasury bonds. The
Review of Financial Studies,31(9), 3265-3306.
De Bondt, W. F., & Thaler, R. (2015). Does the stock market overreact?. The Journal of
finance, 40(3), 793-805.
Duffee, G. R. (2018). The relation between treasury yields and corporate bond yield
spreads. The Journal of Finance, 53(6), 2225-2241.
Ehrmann, M., Fratzscher, M., & Rigobon, R. (2017). Stocks, bonds, money markets and
exchange rates: measuring international financial transmission. Journal of Applied
Econometrics, 26(6), 948-974.
Hendershott, T., & Seasholes, M. S. (2017). Market maker inventories and stock
prices. American Economic Review,97(2), 210-214.
CASE STUDY 6
Lux, T., & Marchesi, M. (2016). Scaling and criticality in a stochastic multi-agent model of a
financial market. Nature,397(6719), 498.
