# Bond Valuation Case Study

Improved Essays
Bond Valuation Bond is one of the long term-liability. It is a type of debt or promissory note issued by the borrower that promising to pay its holder a predetermined and fixed amount of interest at fixed interval (6 months, 1 year) and pay the par value at maturity. Bond also is referred to as public debt because they can be traded in the public financial markets. Bonds can be classified in a variety of ways. There are unsecured and secured bonds. The unsecured bonds include debentures, subordinate debentures and income bond while the secured bond is mortgage bond. The debentures are the any of unsecured long-term debt. Convertible bonds are normally the debentures. Subordinate debentures are the debenture that is subordinated to the other debentures. It is the claims that are not …show more content…
(b) Give two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the firm bond/
(c) If the required return were at 12% instead of 10%, what would the current value of firm’s bond be? Compare and contrast the finding with your finding in part a.

3) Paul Walker’s broker has shown him two bonds which are Axiata Bonds an Digi Bonds. Each has maturity of 5 years, a par value of \$1,000, and a yield to maturity of 12%. Axiata Bond has a coupon interest rate 6% paid annually. Digi Bond has a coupon interest rate of 14% paid annually.
(a) What is the selling price for each of the bond?
(b) Paul has \$80,000 to invest. How many of the bond could Paul purchase?
(c) Calculate the yearly interest income of Axiata Bond and Digi Bond that Paul could buy with his \$80,000.
(d) Assume that Paul will reinvest the interest payments as they are paid at the end of each year and that his rate of return on the reinvestment is only 10%. Calculate the value of principal payments plus the value of Paul’s reinvestment account at the end of the 5

## Related Documents

• Improved Essays

If Beverly Enterprises has a cost of capital equal to 15 percent, at what value of annual cash flow would Beverly Enterprises be likely to sell the nursing home? A. \$1,500,000 B. \$2,000,000 C. \$4,000,000 Numeric Problems (4 @ 6 = 24) For the following four problems, start with the price-setting example from the text. The initial assumptions are provided in the table below.…

• 654 Words
• 3 Pages
Improved Essays
• Great Essays

Objective: Judy and John DeRight is interested in real estate and would like to seek financial advice from their family financial advisor Angus Cartwright. Judy DeRight as the president and sole stockholder of a small-sized chemical company is at the peak of her career and would like to invest part of the 45 million dollars which she accumulated from equity and fixed income security over the years into real estate as an attempt to diversify her portfolio. Earning a steady cash flow of 2.1 million annually for the past five years from her company, Judy is ambitious and by having a greater risk tolerance she is interested in property with great future value. Unlike Judy, John DeRight is in his retirement and has sold his business to a medium sized public company and acquires over \$35 million in stock of that company. Although he is expected to have a steady income stream of \$1 million from dividend and other income…

• 1322 Words
• 6 Pages
Great Essays
• Superior Essays

If you bought a house for \$150,000 with an annual inflation rate of 4 percent, it would take about 18 years for the house’s worth to double based on the Rule of 72. b. If you bought a Picasso painting at last week 's auction for \$200,000 and the annual inflation rate is 10 percent, how long would it take to double your money? If you bought a painting by Picasso for \$200,000 with an annual inflation rate of 10 percent, it would take around 7 years for the painting’s worth to double. c.…

• 1506 Words
• 7 Pages
Superior Essays
• Superior Essays

An isotope is an atom containing different numbers of neutrons, differing in atomic mass. Basically an atom with a different atomic mass. What’s special about radioactive isotopes is that a radioactive isotope has a nucleus that decays spontaneously giving off particles and energy. 6. Radioactive tracers are used in science to label certain chemical substances, so metabolic processes can be followed and substances can be located in an organism.…

• 1358 Words
• 6 Pages
Superior Essays
• Improved Essays

| Investopedia," n.d.) For instance, if a zero-coupon bond is trading at \$950 and has a par value of \$1,000 (paid at maturity in one year), the bond's rate of return at the present time is approximately 5.26% ((1000-950) / 950 = 5.26%). ("Why do interest rates tend to have an inverse relationship with bond prices? | Investopedia," n.d.)…

• 488 Words
• 2 Pages
Improved Essays
• Great Essays

Current Market Conditions Paper To analyze the current market value of the company Walgreen there are other topics that need to be addressed such as is included in this report. They are as follows: Market Structure…

• 2598 Words
• 11 Pages
Great Essays
• Decent Essays

A compound is defined as a chemical combination of two or more elements. A chemical bond is the “glue” holding together atoms of different elements. Two types of bonds are ionic and covalent. Ionic bonds generally occur between a metallic atom and a nonmetallic atom. The bond results from the transfer of one or more electrons from the metallic atom to the nonmetallic atom, resulting in a charge difference.…

• 100 Words
• 1 Pages
Decent Essays
• Decent Essays

The company recognises interest income on cash and money market deposits using the effective interest method (easyJet plc, 2016). The same method will be utilised to calculate both the interest income and the interest on bank and other borrowings. The formula for calculating effective rate is as follows: Where is the interest received (paid) at time t and is the total cash and deposits (total debt). As shown in exhibit 4, the effective average interest on income is equal to 0.55% and that on borrowings is 1.35%. The effective rate on borrowing will be used as the cost of debt later on in the valuation.…

• 258 Words
• 2 Pages
Decent Essays
• Improved Essays

Portfolio- Budgeting for Retirement Budgeting promotes a foundation and a plan of action. In Proverb 21:5, it talks a strongly about having a plan and how having a plan is important because there would not be a lot of hasty decisions being made with a plan in order. God is about plans frequently in the Bible and he or she can see the success of planning shred through many biblical leaders in the Bible. Jesus had a plan, Moses had a plan, and even Daniel had a plan to defeat the giant.…

• 609 Words
• 3 Pages
Improved Essays
• Improved Essays

Therefore, my answer for Step 3 is 0. Step 4: The job I currently have does not offer a DB pension; therefore, my answer for Step 4 is 0. Step 5: I have a Traditional IRA, it is currently worth \$11,935.35. My IRA is invested…

• 1218 Words
• 5 Pages
Improved Essays
• Improved Essays

• SunE Sky 13th Sideroad, LP (“SunE Sky” or the “Borrower”), a bankruptcy-remote limited partnership between SunEdison, LLC (“SunEdison”) (NR) and SkyPower Limited (“SkyPower”) (NR) (the “Sponsors”), owns and operates the 13th Side Road Solar Energy Project (the “Project”) - an 8.0 MWac PV solar project that was constructed pursuant to Ontario’s Renewable Energy Standard Offer Program (“RESOP”) and sells the energy output to the Independent Electricity System Operator (the “IESO”) (Aa2; SFS 2) pursuant to a 20-year Power Purchase Agreement (the “PPA”). • In 2010, SFS EF AM committed CA\$8.25 million (US\$ 6.35 million (1 CAD=0.77 USD)) to the Borrower’s CA\$ 32.0 million Senior Secured Term Loan (the “Term Loan”). The Term Loan has a 15-year…

• 796 Words
• 4 Pages
Improved Essays
• Improved Essays

A 20% debt to total capital structure will move our price to \$22.60, a 2.26% increase and 1,999,000 shares to be bought back, a 6.68% decrease. Finally, a 30% debt to total capital structure will jump our stock price to \$22.86, a 2.99% increase and allow us to repurchase 2,965,000 shares, a 10.18% decrease in shares. Question Number 5 As debt is used to finance the repurchase of equity therefore, as the number of shares reduces, debt is issued more. Because issuing debt is cheaper than equity and also the interest is tax deductible expense, for that reason return would increased and such return would be spread out reduced number of shares resulting increase of Return on Equity (ROC).…

• 976 Words
• 4 Pages
Improved Essays
• Improved Essays

Chris Bergeron Mark Marra B.F. Goodrich-Rabobank Case 1.In order to make this an attractive deal for Rabobank, they would need to receive more money than they pay out. We know that they have a fixed receipt each year from Morgan bank of \$ 5.5 million for 8 years. Ignore the time value of money on this, it means that Rabobank would then need to pay out less than (5.5/2 = 2.75) \$2.75 million semiannually. We know the equation for the amount Rabobank needs to pay out semiannually is: (50 million)(LIBOR - X)(½). In order for this equation to equal the \$ 2.75 million they are due to receive, we solve for this: (50 million)(LIBOR - X)(½) =…

• 810 Words
• 4 Pages
Improved Essays
• Superior Essays

Students worked through 5 questions relating to financial mathematics. The task was provided by the school, to ensure similarity between classes the exam could not be altered. This exam relates directly to the Year 10 content descriptor ACMNA229 (ACARA, 2017). Reading through the exam an overall comment would be to allow students to identify which questions relate to different graded marks as well as ensuring that the examples are contextualised to the students. Although purchasing a car or house is relevant in may people life times, 15year old students will not be making these purchases or investment decisions for some years.…

• 1295 Words
• 6 Pages
Superior Essays
• Improved Essays

The purpose of this paper is to analyze Apple’s stocks and bonds to determine whether an individual investor should invest in this company. I will use financial statements, reports from previous years, and ratio analyses. Combined this data will determine whether to add Apple to an investor’s portfolio or whether they should look for another investment opportunity. I will use various sources to gather information on the companies short and long term debt, credit rating, and interest rates to complete the bond analysis. I will complete an analysis of their stock using their current market value, both book and forecasted prices, financial statements, and past stock trading prices.…

• 756 Words
• 4 Pages
Improved Essays