Problem:
The Woodside Petroleum Ltd. (https://www.woodside.com.au/Pages/default.aspx) is Australia's largest publicly traded oil and gas exploration and production company and one of the world's leading producers of liquefied natural gas? Woodside has entered into an agreement for the issuance of US$700,000,000 in corporate bonds into the United States 144A bond market. Settlement of the offering is subject to certain customary conditions.
The bonds will be issued by Woodside Finance Ltd., a wholly owned subsidiary of Woodside Petroleum Ltd., and will consist of US$700,000,000 of 10-year bonds with a coupon of 4.6%.
The bonds will be guaranteed by Woodside Petroleum Ltd. and its wholly owned subsidiary, Woodside Energy Ltd.
The funds will be used for general corporate purposes including, but not limited to, repayment of some of Woodside's existing debt, which matures in 2011, as well as the funding of our ongoing capital and exploration program [https://www.woodside.com.au/Investors-Media/Announcements/Pages/Woodside-to-issue-US$700-million-in-corporate-bonds.aspx].
1) Would you choose to invest in the Woodside Petroleum Ltd.'s bond as part of your investment portfolio? Why or why not? If so, what sort of strategy would you pursue?
2) Based on your analysis and findings, would you recommend the Woodside Petroleum Ltd.'s bonds to other investors? Please explain your reasoning.
3) Calculate current price of the Woodside Petroleum Ltd.'s bond (Use market rate of 4% for Woodside Petroleum Ltd.'s bond to calculate current price of the bond. The par value is $700,000,000, of 10-year bonds with a coupon of 4.6%.
4) Is the Woodside Petroleum Ltd.'s bond overvalued or undervalued?
5) Does the fluctuation in interest rates impact bond prices? How?
6) Define investment strategies utilizing fixed income securities and Identify key factors in analyzing bond investment risk and valuation.