Bond Valuation Assignment Help

Bond Valuation Assignment Help Calculation of Bond Price The Coca-Cola Company is selected for bond evaluation. The bond selected is corporate bond Coca Cola 3.3% that will mature on 09/01/2021, around after 9 years, the face value of the bond is $100 and the coupon rate is 3.300% (Morningstar, 2012). Coupon type is fixed and coupon frequency is semi-annually. Market price of Bond can be calculated by following formula: Bond Valuation Assignment Help

Another company is selected PepsiCo. For this company, PepsiCo 3% corporate bond is chosen that will mature on 08/25/2021. So, maturity period will be around 9 years. The face value of the bond is $100 and the coupon rate 3.000%. Coupon type is fixed and coupon frequency is semi-annually. For this bond, market price and yield of maturity can be calculated in following manner:

calculation of bond price

Comparison of Return on Bond The yield to maturity shows the total return that will be received by the investor, who holds bond until maturity. It is an overall return on investment. The yield to maturity takes into account all the future cash flows that an investor will get from the bond. YTM can be effective measure to know about the return on both companies’ bond.

Yield-to-Maturity can be calculated by this formula: YTM for Coca-Cola Bond: YTM for Coca-Cola Bond   YTM for PepsiCo Bond: YTM for PepsiCo Bond

On the basis of above calculation, it can be concluded that value of yield to maturity for bond of PepsiCo’s bond is found greater than that of Coca Cola. It indicates that bond of PepsiCo is receiving the better price.

Viewpoint on the Time Value of Money From a time value of money frame of mind, the price of each bond is the sum of the present values of all expected coupon payments plus the present value of the par value at maturity. This market price of bond is calculated by discounting the known future cash flows. It is assumed that each payment is re-invested at some interest rate once it is received.

Credit Rating of Each Company Generally, bond ratings are developed in order to help investors to understand them about the relative risk associated with different bonds. All bonds carry a potential risk of default other than federally issued bonds. Bond ratings of the company enable the investors to evaluate and balance the risk of default with the availability of interest payments on the bond. Yield to maturity for PepsiCo’s bond is 8.25% while it is 7.67% for Coke’s bond. Both companies have effective credit ratings that will help in reducing credit risk to the bond market and investors will ready to invest in both companies bond. At the same time our finance case study assignment help experts said that, the credit rating for PepsiCo’s bond is better as compared to Coke’s bond. It is because yield to maturity is higher for PepsiCo’s bond in comparison of Coke’s bond. Additionally, both companies have improved their financial position in the market (continuously increasing net income) which shows that credit rating can also increase in the future. On the basis of credit rating, PepsiCo is more secure as it has higher yield to maturity as compared to Coke. Due to higher credit rating bank feels that the company will be able to pay back the loan. Bank considers credit rating while determining interest rate for the given loan (Madura, 2012). They charge lower interest for those companies, which have higher credit rating or vice versa. It is the reason that the bank will charge more interest for Coke as it has lower credit rating as compared to PepsiCo.

In this way, credit rating explains an investor that whether a bond is secure for the purpose of investment or not. In this concern, by considering the credit rating of the companies, investors take decisions regarding the investment. If a company has poor credit rating, investors avoid making investment in such companies, as they know that company has high default risk. Interest rate is the required yield for bond pricing. For both PepsiCo and Coke, the calculated bond price is less than its par value. It is the reason that the bond has been sold at a discount. At the same time, the yield to maturity of the bonds is higher than the coupon rate. It shows that company is selling the bond at discount to attract investors (Gup, 2005). From the both company’s point of view, bonds are attractive because they can attract investors to attain the required capital as due to greater yield to maturity, investors can make larger returns in the market.    

References Gup, B. E. (2005). Capital Markets, Globalization, and Economic Development. Germany: Springer. Madura, J. (2012). Financial Markets and Institutions. USA: Cengage Learning. Morningstar (2012). Retrieved from

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