Bond Valuation Factors
Week 4 Discussion 1
Bond Valuation Factors
These resources will help you to complete this discussion:
Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2018). Corporate finance: Core principles and applications(5th ed.). New York, NY: McGraw-Hill.
Chapter 5, “Interest Rates and Bond Valuation,” pages 130–164. This chapter illustrates the employment of time value of money concepts to determine the value of corporate debt/bonds and common/preferred stock.
McCracken, M. (n.d.). Bond valuation[Video]| Transcript. Retrieved from http://www.teachmefinance.com/bondvaluation.html
The time value of money concepts are used to compute financial instruments like corporate debt and bonds. All investments are ultimately tied to cash, how much is received, and how quickly it is received. The concepts employed here are the same valuation concepts that you will use to complete the Unit 6 assignment, Evaluation of Capital Projects.
In this discussion, examine the way cash flows are analyzed to determine prices for financial securities and how these securities relate to enterprise value. Imagine you have graduated with your MBA, and your grandmother has asked your advice on a bond that her broker has recommended. She sent you the following e-mail:
Hi there! I just met with Amanda Ritter—you know, that broker I was telling you about at dinner the other night. Anyway, Amanda says I should consider buying some bonds, but I have no idea what to do. I have some questions for you.
What information do I need to determine the suitability of a bond?
What type of information do I need to determine the price of the bond?
What factors could impact the bond price, going forward?
What else should I think about so I can make an informed choice on whether to buy the bond or not?
Are there good resources that you can send to me? (I’d love to read them and start educating myself on bonds.)
Thanks for your help. It would be great if you could e-mail your answers and send me a list of resources by the end of the week. I’d like to prepare before meeting with Amanda again. Thanks!
Prepare a post that addresses your grandmother’s questions, and include a list of resources that will help her to understand bonds and bond valuation.
Solution preview for the order on Bond Valuation Factors
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