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1)What is valuation, and why are we interested in the results? 2

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1)What is valuation, and why are we interested in the results?

2. Contrast real assets and financial (paper) assets. What is the basis for the value of each?

3.  What is the relationship between bond prices and interest rates? Verbally describe how this relationship comes about. How can we use this relationship to estimate the value of a bond?

4. Under what conditions is a bond almost certain to be called at a particular date in the future? How does this condition affect its price?

5. You're an analyst in the finance department of Flyover Corp., a new firm in a profitable but risky high-tech business. Several growth opportunities have presented themselves recently, but the company doesn't have enough capital to undertake them. Stock prices are down, so it doesn't make sense to try to raise new capital through the sale of equity. The company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow Flyover to borrow. Write a brief memo summarizing your ideas.