Why does the bank charge more interest for one company than


Key Assignment Draft

Understanding how to properly value a vanilla bond is essential for finance. Find a company with debt and that pays dividends. You can use the following stock screener to find a company: https://www.google.com/finance/stockscreener. Add the criteria of long-term debt to assets to ensure the company has debt. Add the criteria of dividend per share. Find the company's financial pages at: https://www.sec.gov/edgar.shtml. Look at the long-term debt on the balance sheet. Determine the coupon price, the length until maturity and the yield to maturity. Calculate today's price of the bond.

  1. List the pertinent information on the bond you chose and then calculate the price of one bond from one company.
  2. Choose another company, find a bond, list all pertinent information and calculate today's price.
  3. Which bond is receiving the better price? Explain your answer.
  4. From a time value of money frame of mind, what does each rate say about the viewpoint on the time value of money?
  5. What does that tell you about the credit rating of each company?
  6. Which company has a better credit rating? Explain your answer.
  7. Based on the credit rating, which company do you think the bank feels more secure w-- ill pay back the loan? Explain your answer.
  8. Why does the bank charge more interest for one company than another?
  9. What does the credit rating say to an investor?
  10. Which bond looks more attractive from the company's view point? Explain why you chose the answer you did.

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