Expert answer:Understanding how to properly value a vanilla bond

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Answer & Explanation: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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