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FIN722 - Corporate Finance GDB No. 1 Solution and Discussion Fall 2017 Due Date: Nov 03, 2017

FIN722 - Corporate Finance GDB No. 1 Solution and Discussion Fall 2017 Due Date: Nov 03, 2017

FIN722 - Corporate Finance GDB No. 1 Solution and Discussion Fall 2017 Due Date: Nov 03, 2017

Total Marks 5
Starting Date Monday, October 30, 2017
Closing Date Friday, November 03, 2017
Status Open
Question Title GDB # 01
Question Description

Factors Affecting Bond Price

 

Learning outcome: After attempting this activity, students will be able to understand different features of the bond and their role in bond price fluctuation.

Background: Bonds are the financial instruments which are featured as loan and a way to raise capital whenever needed by organizations. Par value, coupon rate, yield to maturity and time to maturity are some of the important features which are associated with a bond. These features have some interesting relations that strongly affect bond prices in the market. According to studies, following relation between market Yield to Maturity (YTM) and coupon rate has been observed which decides either a bond will be issued on premium or at discount:
 
If YTM is less than the coupon rate, current price of the bond will be greater than its face value and bond will be selling at premium. On the other hand, if YTM is greater than the coupon rate, price of the bond will be less than its face value and bond will be selling at discount.

 

Similarly, bonds with different time to maturities and varying coupon rates respond differently to interest rate changes in the market. In this context, two cases have been given below:

 

Case 1: Alpha company has issued two bonds with par value of Rs. 100,000 each and both have 20 years of maturity. Moreover, Coupon rate of bond issue-1 is 8% semiannually while the coupon rate of bond issue-2 is 9% semiannually.

Case 2: Beta company has issued two bonds with par value of Rs. 100,000 each and at annual coupon rate of 10%. Further, bond issue-1 has 15 years of maturity and bond issue-2 has maturity period of 20 years.

 

Required: Analyze which bond will show more price fluctuation to interest rate changes in each of the above given cases and why?

(Note: Any numeric working is not required. Support your answer with solid reasoning. Your answer must be to the point in context of above given scenario so, irrelevant discussion should be avoided).

 

Important Instructions:

  • Post your GDB comments (answer) against GDB # 01 rather than against lessons’ MDB.
  • Your discussion must be based on logical reasoning and to the point. Avoid irrelevant discussion and unnecessary information
  • Do not copy or exchange your answer with other students.  Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
  • Books, websites and other reading material may be consulted before posting your comments;but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
  • Obnoxious or ignoble answer should be strictly avoided.
  • Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB.

     

  • For Detailed Instructions, please read the GDB # 01 announcement

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P.S:    Please always try to add the discussion in proper format title like “CS101 Assignment / GDB No 01 Solution & Discussion Due Date: ___________”

Dear Students!

This is to inform that Graded Discussion Board (GDB) No. 01 will be opened on October 30, 2017 for discussion and last date for posting your discussion will be November 03, 2017This Graded Discussion Board will be on the topic of Bond and more specifically the concept of factors which affect bond prices.

APPLY FORMULA FOR CALCULATING BOND PRICE FOR BOTH CASES AND ANSWER WILL BE EASY TO REPLY

Assalam o Alaikum,

Dear Friends,

Please share the formula, by which we can make a comparison that which bond will show more price fluctuation and interest rates in above cases...

3rd Nov is the last date so please help.....

Many thanks....

Please Share the solution of GDB for FIN722_Corporate Finance, today is the last day.

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