Explain the benefits derived from investing in deep discount bonds.Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?

Assignment Questions

Q1: Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?

Q2: Given the following financial data, compute:
a. Return on equity.
b. Quick ratio.
c. Long-term debt to equity.
d. Fixed-charge coverage.
Assets:

Cash
$ 2,500
Accounts receivable
3,000
Inventory
6,500
Fixed assets
8,000
Total assets
$20,000

Liabilities and stockholders’ equity:

Short-term debt
$ 3,000
Long-term debt
2,000
Stockholders’ equity
15,000
Total liabilities and stockholders’ equity
$20,000

Income before fixed charges and taxes
$ 4,400
Interest payments
800
Lease payment
400
Taxes (
1,120
Net income
$ 2,080

Q3: Explain the benefits derived from investing in deep discount bonds.
Q4: Explain how to manage bond portfolios and what are the portfolio management strategies.

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