A stockbroker has proposed two investments in low- rated corporate bonds paying
ID: 2570336 • Letter: A
Question
A stockbroker has proposed two investments in low- rated corporate bonds paying high interest rates and selling at steep discounts (junk bonds). The bonds ane rated as equally risky and both mature in 15 years. 8-5 Annual Current Market 0% nd Stated Interest Price with Value Payment Commission Bond Gen Dev $1000 S 67 RJR $480 630 1000 98 (a) Construct a choice table for interest rates from (b) Which, if any, of the bonds should you buy if (e) Are there professional ethics standards for stock 0%to100% your MARR is 20%? om brokers in the U.S.? What are some common ethical pitfalls?Explanation / Answer
CHOICE TABLE
Years
Gen Dev
RJR
i%
Gen Dev
RJR
0
-480
-630
0
$1,525.00
$1,840.00
1
67
98
5
$1,243.45
$1,596.22
2
67
98
10
$816.00
$1,082.79
3
67
98
15
$581.67
$793.94
4
67
98
20
$445.16
$621.10
5
67
98
25
$360.75
$511.39
6
67
98
30
$305.51
$437.82
7
67
98
35
$267.40
$385.99
8
67
98
40
$239.85
$347.85
9
67
98
45
$219.12
$318.75
10
67
98
50
$202.98
$295.84
11
67
98
55
$190.04
$277.33
12
67
98
60
$179.44
$262.06
13
67
98
65
$170.57
$249.23
14
67
98
70
$163.03
$238.30
15
1067
1098
75
$1,156.54
$1,228.86
IRR
16%
17%
80
$84.05
$122.80
85
$78.91
$115.38
90
$74.51
$108.95
95
$70.57
$103.20
100
$67.03
$98.03
CHOICE TABLE
Years
Gen Dev
RJR
i%
Gen Dev
RJR
0
-480
-630
0
$1,525.00
$1,840.00
1
67
98
5
$1,243.45
$1,596.22
2
67
98
10
$816.00
$1,082.79
3
67
98
15
$581.67
$793.94
4
67
98
20
$445.16
$621.10
5
67
98
25
$360.75
$511.39
6
67
98
30
$305.51
$437.82
7
67
98
35
$267.40
$385.99
8
67
98
40
$239.85
$347.85
9
67
98
45
$219.12
$318.75
10
67
98
50
$202.98
$295.84
11
67
98
55
$190.04
$277.33
12
67
98
60
$179.44
$262.06
13
67
98
65
$170.57
$249.23
14
67
98
70
$163.03
$238.30
15
1067
1098
75
$1,156.54
$1,228.86
IRR
16%
17%
80
$84.05
$122.80
85
$78.91
$115.38
90
$74.51
$108.95
95
$70.57
$103.20
100
$67.03
$98.03
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