Create a valuation model for a new issuance of $100 million dollar corporate bonds with a face value of par. Include numerical illustrations with tables. Remember the valuation model is hypothetical.
Your assignment should demonstrate thoughtful consideration of the ideas and concepts presented in the course by providing new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Be sure to adhere to the Academic Integrity Policy.
Write a five to seven page APA report not including title and reference pages answering the questions below. Do not just answer the questions, but use the questions to formulate your report. Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Be sure to adhere to University’s Academic Integrity Policy.
Questions to be answered in your report:
Write a research report that outlines the topics –
- Develop and present a valuation model for corporate debt with a face value of $100 million dollars. The model should use hypothetical assumptions for the coupon rate and other characteristics as well as a hypothetical market interest rate. You must also select a maturity for the bonds and the frequency of the coupon payments. The market rate should be justifiable/reasonable given current market conditions. Explain why the model will be important for the issuance process that is being considered.
- Explain the possible determinants of the market interest rate that you chose. For example, you should explain how the inflation rate in the economy could be expected to impact the market rate that you chose.
- Explain how the market rate you chose will be dependent upon the maturity. Describe what you believe to be the most persuasive theory associated with the shape of market interest rates across the maturity spectrum (i.e., the yield curve).
- Comment on how the different bond characteristics would influence the valuation of the bond. Provide illustrations in a summary table format for how the value might adjust for call provisions and sinking funds.
The purpose of this assignment for the student is:
- Use information technology to complete academic writing and research.
- Present written information in a persuasive, organized, clear, and concise manner relying on research, data, and analytics.
- Use acceptable paragraph and sentence structure with minimum grammar, punctuation, and spelling errors; and demonstrate appropriate word choice, tone, and format.
- Explain how the time value of money works and discuss why it is such an important concept in finance.
- Identify the different types of annuities, calculate the present value and future value of both an ordinary annuity and an annuity due, and calculate the relevant annuity payments.
- Explain what the yield curve is, what determines its shape, and how the yield curve can be used to help forecast future interest rates.
- Calculate a bond’s yield to maturity and yield to call if it is callable, and determine the “true” yield.