Understanding how to properly value a vanilla bond is essential for finance

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timer Asked: Oct 22nd, 2015
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Part I Deliverable Length: 700-1000 words
Understanding how to properly value a vanilla bond is essential for finance. Find a company with debt and that pays dividends. You can use the following stock screener to find a company:http://www.google.com/finance/stockscreener. Add the criteria of long-term debt to assets to ensure the company has debt. Add the criteria of dividend per share. Find the company’s financial pages at:http://www.sec.gov/edgar.shtml. Look at the long-term debt on the balance sheet. Determine the coupon price, the length until maturity and the yield to maturity. Calculate today’s price of the bond.

·  List the pertinent information on the bond you chose and then Calculate the price of one bond from one company.

·  Choose another company, find a bond, list all pertinent information and calculate today’s price.

·  Which bond is receiving the better price? Explain your answer.

·  From a time value of money frame of mind, what does each rate say about the viewpoint on the time value of money?

·  What does that tell you about the credit rating of each company?

·  Which company has a better credit rating? Explain your answer.

·  Based on the credit rating, which company do you think the bank feels more secure will pay back the loan? Explain your answer.

·  Why does the bank charge more interest for one company than another?

·  What does the credit rating say to an investor?

·  Which bond looks more attractive from the company’s view point? Explain why you chose the answer you did.


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UT Austin

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Anonymous
Awesome! Exactly what I wanted.

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