Question details

Vanilla valuation A+ rated
$ 20.00
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 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. 
Part II  

Deliverable Length: 
700-1000 words
Understand how to properly find the value of a stock using the dividend growth rate is a fundamental building block in valuation. Find two companies and evaluate each stock using a constant dividend growth model. Please use a standard long-term economic growth rate of 3% in your calculations.

 

  • Calculate the future growth rate for both companies.
  • Which stock has the better growth rate? Do you agree with this assessment? Explain. Support your answer with either a description of a new product growth or from past growth performance.
  • Calculate the future stock price for both companies.
  • From a time value of money point of view stand point what does the calculated stock price say about the market’s view on the time value of money for each stock?
  • Compare the calculated stock price with the current stock price for both companies.
  • Is either stock underpriced or overpriced? Explain.
  • Should an investor purchase either of those stocks?
  • Should one stock outperform the other?
  • Based on the ratings found in Phase 4, does one stock seem more financially healthy? Explain.
  • Does this financial health make a stronger case to invest in the stock? Explain---
Available solutions
  • Vanilla valuation A+ rated
    $20.00

    For the purposes of this assignment, Xerox Corp & Bank of America has been considered. The relevant information about the calculation of bond price has been provided below: Table 1: Bond Comparison Company name Bank of America (BANK AMER CORP SR INTNOTES BE) Xerox Corp Actual Price ($): 105.42 118.51 Coupon (%): 4.9 6.75 Required rate of return (assumed) (%) 10 10 Calculated Price ($): 82.15 89.73 Maturity Date: 15-Feb-17 01-Feb-17 Yield to Maturity (%): 3.846 3.203 Current Yield (%): 4.648 5.696 Fitch Ratings: A BBB Coupon Payment Frequency: Annual Annual First Coupon Date: 15-Aug-10 01-Feb-07 Callable No No In the above table, the line item “Calculated Price ($)” lists the price that I would be willing to pay for the above mentioned bonds, after a

    Submitted on: 05 Oct, 2015 12:35:32 This tutorial has not been purchased yet .