First, read the case Calculating & Disclosing Bond Yields: Ethics and Mechanics.
Be sure to read the Notes at the bottom of the case, including:
“The term “estimated yield” is essentially synonymous to the term “current yield.” Textbooks define current yield as the bond’s coupon payment divided by the current market value of the bond. Brokerage statements report what they term estimated yield, which is the client’s projected annual income from a series of bonds (i.e. aggregate coupon income) divided by the aggregate market value of those bonds.
The EMMA website and search function can be accessed here http://emma.msrb.org/.”
Additional readings (not required, but recommended by the case study’s author)
Financial Industry Regulatory Authority (FINRA) (2016), Bond Basis: Yields That Matter More. Retrieved from http://www.finra.org/investors/bond-yield-and-return
Securities and Exchange Commission (SEC), General Information on the Regulation of Investment Advisers. Retrieved from https://www.sec.gov/divisions/investment/iaregulation/memoia.htm
Zweig, J (2015, Oct. 30), “How Muni Bonds ‘Yield’ 4% in a 2% World”, The Wall Street Journal. Retrieved from http://on.wsj.com.ezproxy.umgc.edu/1RDOCmp
Second, answer the questions. In your initial response to the topic you have to answer all questions:
Examine the brokerage statement contained in the case. How would the stated “estimated yield” compare to the yield to maturity for an investor who purchased the bonds on the statement date at current market prices?
Are you concerned by the ethical behavior presented in the case? Describe the dilemma and explain what you would do. Justify your response.
Reflection – the students also should include a paragraph in the initial response in their own words, using finance terminology, reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace or in everyday life.
Please also note that your answers should be written in your own words. Don’t use quotes from the case.
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