Vanilla Bond Valuation

Key Assignment Draft- 700-1000 words with APA references and original work

 

Understanding how to properly value a vanilla bond is essential for finance. Find two companies with debt and that pay 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 both 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 both companies.
• Which bond is receiving the higher 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?
• Which company has a better credit rating? Explain your answer.
• Based on the credit rating, which company do you believe 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 is more financially attractive? Explain why you chose the answer you did.