Posted: November 5th, 2015

Business Finance

Business Finance

Subject    Business Finance I – Stocks and Bonds Summer 2015

Case    Each Company can be covered only once
Questions

1.    Analyze how the liquidity situation changed over the last three years. Ratio analysis might help you here.

2.    Give a small overview of the bonds the company has outstanding
(Volume, YTM, Coupon, Rating, Call Provision etc.)

3.    Did the YTM of these bonds change over the last year?

4.    Take the three bonds with the biggest amount outstanding in the companies debt portfolio, then take the shortest-maturity and the longest-maturity bond (standard, no options imbedded). Calculate their spreads relative to sovereign bonds. We will focus on these five bonds now. Note: You should at least have one bond with less than one year of maturity left and one with more, ideally much more, than ten years to maturity.

a.    Reprice all bonds assuming that nothing has changed but that one year has past, i.e. we are now in July 2016.
b.    Any observations about your findings? How would you present them to a potential investor (audience)? What would the holding period return have been in all five cases?
c.    I (in the audience) have some savings I would like to place for a year or two. Would you advise me to buy any of those bonds? Which one? Why? Would you?
d.    I (in the audience) am representing a Sovereign Wealth Fund and am looking to invest 10bn in the company’s bonds. Which ones should I buy? Or do you have any other advice (You are independent, do not represent or work for the company)?
e.    I (in the audience) am representing the Pension Fund of  the company where your Mom and Dad are both employed as engineers. My external advisers tell me we have a duration mismatch in our investments, which are mostly stocks and cash. Should I invest in any of this company’s bonds? Which? Why?

5.    Calculate the required rate of return of the stock of your company based on the CAPM-Model.

6.    What is the expected growth rate of your company based on the current market price (use here the constant growth model)?

Note: Your pricing will be approximate (day counts, holidays, many other things left out). Present what you do and how you do it. The numbers need not be exact like a Bloomberg terminal but should make sense and you should understand them and be able to explain the logic and economics behind the calculation and the results!
Each Team (max. 3 members) has to hand in a written version (word or other) of the Project before presentation and present his result with a PP-Presentation (max.10 min).

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