Vanilla Bonds

James Crowl Colorado Technical University FIN390-1201B-03 Phase Five someone Project Instructor: Professor Galloway March 16, 2012 Part One: vanilla Bonds Abstract Understanding how to properly value a vanilla tie paper is essential for finance (ctuonline.edu). In theory, the present value alliance determines the value of a tie, but in practice the substantial price is (typically) determined by suggestions from other, more liquid mechanisms. The spirit of this work pull up stakes be to research bonds offered by Safeway (SWY), collapse them, and then decide in what situation these bonds would be salutary for the investor. More often than not, a company that is successful will have retained some of its earnings. The company whitethorn do one of two things: disperse part of the cash break through in the form of dividends, or simply hang onto it to attain a competitive advantage. Eventually, they realize that the monies could be working for them also. Stocks may carry the lure of a larger return, but that comes with the unpredictability and risk of the market. Bonds, however, may offer a steady income (larger than dividends) that may be used to provide its investors with consistent revenues. Safeway offers a bond that matures in 2031, with a coupon evaluate of 7.25% and a drop rate of 5.88%. This will make the retribution $72.50.

The following slowness reveals the bond price: 1000Par 72.5Payment 19NPER 0.0588YTM ($1,154.31)Value This bond is currently selling to a high place its face value, which makes it a premium bond. Intel sight (INTC) offers a bond that matures in 2041 with a coupon rate of 4.8% and a discount rate of 4.51%. This will make the payment $48. The following calculation reveals the bond price: 1000Par 48Payment 29NPER 0.0451YTM ($1,046.41)Value Both bonds are selling above the face value, but the Safeway bond is selling for a higher price than is Intel. This makes the Safeway bond a more attractive bond. The bond that matures in less time... If you want to get a full essay, order it on our website: Orderessay

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