Example Corporate Bond Analysis Project

Example Corporate Bond Analysis Project - Project 1...

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Unformatted text preview: Project 1: Corporate Bond Analysis Finance 3050 -­‐ Investment Analysis Time Warner Cable 8.75% Feb. 14, 2019 Lorillard Tobacco 8.125% Jun. 23, 2019 Current Price Current Yield Yield to Maturity Yield to Call Duration 129.44 125.11 6.76 6.49 6.031 6.24 8.66 2.16 2.79 0.799310 2.28 9.51 Not Callable Not Callable 103.5 106.0 4.003 4.25 Not Callable 1.88 1.81 5.26 4.19 1.87 1.79 5.02 Modified 3.96 Duration Rating Moody’s: Baa2 (Moody’s S&P: BBB & S&P) Current Spread +69.6 Moody’s: Baa2 S&P: BBB-­‐ +121.6 MetLife Seagate Bon Ton 6.75% HDD Stores 8.00% Jun. 1, Cayman Jun. 15, 2021 2016 7.00% Nov. 1, 2021 111.91 112.25 92.38 Moody’s: Moody’s: A3 Ba1 S&P: A-­‐ S&P: BBB-­‐ +41.7 +193.6 Moody’s: Caa1 S&P: B-­‐ +753.9 Given the information above and my knowledge of bonds up to this point I would choose the MetLife 6.75% bond with a maturity date of June 1, 2016. It looks good to me in comparison to the other four bonds above, specifically when looking at the bond rating. As I understand it bond ratings reflect the creditworthiness of the bonds, so they are utilized to assess the probability that the debt will be repaid. Moody’s rating of A3 and S&P’s rating of A-­‐ are the highest of the five bonds, meaning MetLife is the bond that is most creditworthy. One thing to take note of is the lower yield to maturity of the MetLife 6.75% bond. However, I don’t believe it is a cause for concern because the maturity date of the MetLife 6.75% bond is years sooner than the four other bonds. When investing in this bond you would have to take into account the earlier maturity date, meaning there would be a lower yield, but you would be compensated by a far better bond rating. With that said, out of the five bonds above I would invest in the MetLife 6.75% bond with a maturity date of June 1, 2016. ...
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