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Valuation of Futures Contracts - Assignment Example

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Valuation of Futures Contracts

The future looks gloomy for this stock Factors affecting perfomance of cooprate bond Prevailing interest rates Idealy corprate bonds offer better yield prospects than government bonds but that’s because of the risk involved. This is happens so as to entice the investors to turn their attention away from the treaeury bonds and securities. Since most often than not, the performance of corprate bonds are pegged against that of treasury bonds. The prices at which the later are quoted really maters, the amount of yield they produce also matters a lot. When the yield of a bonds future is less than that of prevailing treasury bonds, such a bond is considered to be under performing. When the Government issues bonds at better prices than that of the corporate bonds the demand shifts to the government bonds thus the laws of demand and supply come into play hence forcing the corporate bond’s price to dip. The opposite happens when the government bonds are not that attractive which is very rare. Overal perception of the investor Whenever global news headlines are positive and encouraging, investors tend to be more open minded and open to opportunities across the globe. At such times they are willing to put out their money because they are confident of a good return on investment thanks to a good business climate moving forward. The opposite happens when there is turmoil and conflict; most investors tend to hold on to their money during such periods. Some investor even consider divesting from markets they consider to be to risky or adversely affected by the negative news. They focus more into secure investments such as treasury bonds and securities. If a company is trading in an environment considered being risky at a particular time by portential investor, those investors may choose to shy away from the corporate bonds issued by that compnay and such an action may affect the price of the bond negatively. Political developments or natural disasters in an economy half way across the world can greatly affect the performance of a stock locally. A good case in point is the earth quakes and Tsunamis. Political activities also do influence price flactuations in a corprate bond. Usually investors shy away from ecomonies that have unstable political environments, especially when such a countries are having elections or revolutions. Overall finacial health of a company The overall financial health of a company is of paramount importance. A company’s ability to maintain high profits increase investor apetite and confidence therefore a corprate bond issues by that company at such a time would fetch very high prices. This is because investors like being assoiated with performing companies thus making them more reluctant to sell the bonds they hold with such companies which results into low yields but rising prices. The opposite happens when a company reports losses. Such reports really vex investor confidence to the extent that some start to doubt weather that Particullar Company will be able to pays their debts to the investors. Such doubts can prompt investors to damp the bonds of that campany into the market thus increasing the yield but reducing prices. Credit rating agencies such as Standards & Poors also do affect the perfomance of a corprate bond. These credit rating agenc ...Show more


Finance and accounting Name: Institution: Day one Day two Day Three Day Four Settlement price (SE)$ 1.3140 1.3126 1.3133 1.3040 Account balance (AS) $ 1700 1698.19 1697.28 1710.30 Net asset value (NAV)$ (SE x AS) 2233.8 2229.04 2230.23 2213.25 Account Balance on day two equals to NAV of Day one divide by settlement price for day two The settlement price seems to be on a constant downward trend…
Author : gerholdjoey
Valuation of Futures Contracts essay example
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