Corporate Bonds Evaluation

Corporate bonds evaluation

1. Quarterly coupon payment

FV = 1300000

Coupon Rate = 3.1 p.a.

Coupon amount =  FV*Coupon Rate

                           =  1300000*3.1%

        = 40300

Quarterly coupon Payment =  Coupon amount/Number of payments per year

        = 40300/4

        = 10075

1. P= CPN *1/y{1-(1/(1+y)^n}+FV/(1+y)^n

P= 10075*1/0.0075{1-1/(1+0.0075)^16} + 1300000/1.0075^16

P = 10075*1.6725+1153512.95

P=16850.773+1153512.95

P = 1170363.723

Debt rating according to the S&P which is given as A the cost of Debt = 3.4%

Credit Spread rating = 79 bp

Taking the 4 year risk free rate

Before tax = 1.665+.79= 2.455

After-Tax Cost of debt = rd(1-tc)

After Tax Cost of debt =  2.455(1-0.30)

                                      =  2.455 (0.70)

                                      =  1.7185 %

Preference Shares

Preference shares = 800000

Dividend = $ 1.31

Price on trading = $ 11.30

 Total price of preference shares = 800000* 11.30

                                                     = 9040000

Required rate of return

rP= Div P/ Pp

    = 1.31/11.30

    =  11.6 %

Ordinary Shares

First we will be taking out the Cost of the ordinary shares by the CAPM model to determine the price