2024 – GRADED DISCUSSION WEEK 4 Please note that if you edit your initial response Original Post

 

GRADED DISCUSSION WEEK 4

Please  note that if you edit your initial response (Original Post), you will  not get  credit for the Original Post. The discussions are set up as  “Must post first”.  

Your assignment:

You are expected to make your own  contribution in a main topic as well as respond with value added  comments to at least two of your classmates as well as to your  instructor.

Please also note that your answers  should be written in your own words. Don’t use quotes from the Internet,  articles, or textbooks. 

For this week discussion you will be using

http://finra-markets.morningstar.com/BondCenter/Default.jsp 

In your initial response you should answer the main question: If you are an investor who is looking for a corporate bond to invest to, are you going to buy a bond that you chose? To answer this question you should complete three steps:

1). Copy the bond’s quotation from the website.

2). Describe the main elements of the bond:

•  Coupon rate
•  Calculate annual coupon payment (assuming face value $1,000)
• What is the frequency of coupon payments of the bond? If the frequency is greater than 1, how much is payment is going to be?
•  Maturity,
•  Rating. Explain the meaning of rating.
•  The last price listed in quotation
•  How much the investor would pay for the bond assuming $1,000 face value and using the last price listed in quotation?
• Calculate the current yield of the bond assuming that par value of the bond is $1,000
• How much is the YTM listed in quotations is for the bond? Explain the meaning of YTM.
• Is the bond callable or not? If the bond that you chose is callable (non-callable), will it change your decision to buy it?

To find the information on bonds, click  on Search in the middle of the screen, under Quick Search type the  Issuer Name and the Symbol, and click SHOW RESULTS.

Another useful website on bond information is https://markets.businessinsider.com/bonds.  To find the information on bonds, scroll down the page, type the name  of the company in the window under Bond Finder, and click SEARCH.

3) Take a look at the balance sheet and income statement of the company. What data or ratios support your decision to buy this bond or not? You should develop a specific recommendation, with supporting rationale to explain your answer.

Reflection – the students also should include a paragraph in the initial response  in their own words reflecting on specifically what they learned from  the assignment and how they think they could apply what they learned in  the workplace.

In your responses to other students you should answer the question: Would you prefer to buy the bond issued by the company chosen by another student? You should develop a specific recommendation, with supporting rationale to explain your answer.

Post by Sabrina

 

1)Copy the bond’s quotation from the website.

Welcome to the Bond Section of the Market Data Center. This section  includes general bond market information such as news, benchmark yields,  and corporate bond market activity and performance information,  descriptive data on U.S. Treasury, Agency, Corporate and Municipal  Bonds, Credit Rating Information from major rating agencies, and price  information with real-time transaction prices for Corporate and Agency  Bonds (TRACE), Municipal Bonds (MSRB) and end of day prices for U.S.  Treasury Bonds.

2) Name: 1011778 B C UNLIMITED LIABILITY CO / NEW

Retrieved from http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C631793&symbol=BCUL4247242

Coupon rate: 4.625%

Annual coupon payment: $1000(4.625%) = $46.25 

1000+46.25= $1046.25

Frequency of coupon payments: 1

Maturity: 7 years, as the offering date was 2015 and maturity is 2022

Rating: Ratings provide an option regarding if a bond is a good or  bad investment, sharing insight of risk. The rating here was withdrawn  in 2019 with a high yield

The last price listed in the quotation: $100

How much the investor would pay: $1100

Current yield: 4.625%(1000)= 46.25%

YTM listed: Not listed. YTM shares the speculative rate of return or  interest rate of a bond. The equation and variables necessary to find  YTM are shown below: 

Image 1 (CFI Education Inc, 2020).

 Where:

C – Interest/coupon payment

FV – Face value of the security

PV – Present value/price of the security

t – How many years it takes the security to reach maturity (CFI Education Inc, 2020).

Callable or not: this bond can be paid off before the maturity rate,  meaning that it’s callable. Depending on the size of the investment,  this may deter someone from investing, as the issuer may redeem the bond  before the maturity date (SEC, n.d.).

3) What data or ratios support your decision to buy this bond or not? 

I would not buy this bond, as the investment does not yield a high  coupon rate, as it is under 5%. This may be reasonable if I was  investing a lot of money, but I would not be investing a lot of money  and could invest better elsewhere. Also, the current coupon rate is of  the higher rates that the coupon rate has been, meaning that it is not  likely I would have any increase on a return during the lifetime of the  investment.

Reflection

This discussion confused me quite a bit. I spent some time trying to  do it myself, and believe that I didn’t do it the right way. A big part  of this was that I had trouble finding bond names, so I decided to use  the name found by one of our peers in order to pull up a better bond to  work with. Honestly, I’m not sure if the first one that I used was even a  bond; these finance websites mess with my head a little bit… I wonder  if that has anything to do with my dyslexia, haha. After finding a bond  to work with, the rest was pretty straightforward, though I’m curious if  the YTM may be provided somewhere else on the Internet, as I could not  find it in my own research.

References

CFI Education Inc. (2020, January 24). Yield to maturity (ytm) –  overview, formula, and importance. Retrieved April 09, 2021, from  https://corporatefinanceinstitute.com/resources/knowledge/finance/yield-to-maturity-ytm/

SEC. (n.d.). Callable or redeemable bonds. Retrieved April 09, 2021,  from  https://www.investor.gov/introduction-investing/investing-basics/glossary/callable-or-redeemable-bonds

Post by Dillion

  

1). Copy the bond’s quotation from the website.

FORD MTR CO DEL

+ ADD TO WATCHLIST

Coupon Rate

9.950

%

Maturity Date

02/15/2032

  

Symbol

F.GI

CUSIP

345370BH2

Next Call Date

—

Callable

—

          

Last Trade Price

$138.50

Last Trade Yield

5.260%

Last Trade Date

03/22/2021

US Treasury Yield

—

2.   Coupon rate

· Coupon Rate is 9.950% 

Calculate annual coupon payment (assuming face value $1,000)

· Annually Coupon Payment = 9.950 * 1,000 = $99.5. 

What is the frequency of coupon payments of the bond? If the frequency is greater than 1, how much is payment is going to be?

· The Payment frequency is Semi Annually. 99.5/2 = $49.75 is how much the payment is going to be. 

Maturity

· The maturity date is 02/15/2032. 

Rating. Explain the meaning of rating.

  

Moody’s®   Rating

Ba2 (03/25/2020)

 

Standard   & Poor’s Rating

BB+ (03/25/2020

The meaning of the rating is to indicate their credit quality. Bonds with the ratings of BBB for (Standard & Poor’s) or Baa3 (on Moody’s) and better are considered investment grade while those with lower ratings are considered “speculative” (high yield). 

The last price listed in quotation

· $138.50

How much the investor would pay for the bond assuming $1,000 face value and using the last price listed in quotation?

· $138.50*1,000/100 = $1,385

Calculate the current yield of the bond assuming that par value of the bond is $1,000

· Yield = 9.04%

9.04%*1000 = $90.4

90.4/138.50 =0.65270

0.65270* 100 = 65.27%

How much is the YTM listed in quotations is for the bond? Explain the meaning of YTM.

· 90.4/2= 45.2

· PV= $138.50

FV= $1,000

YTM = 0.65270 * 2= 1.3054

 1.3054 * 100= 130.54

YTM is yield is column is 9.950 for F.GI and 8.875 for F.GJ. YTM stands for Yield to maturity and is very important to the company. YTM is the annual rate of return that an investor can expect to earn if they hold a bond till maturity. 

Is the bond callable or not? If the bond that you chose is callable (non-callable), will it change your decision to buy it?

· No, the bond is not callable. A callable bond is a bond that can be paid off by the company issuing the bond be it matures. Me personally, it is less attractive because it will be short lived but to others it could be attractive because of it’s rate of return. 

3. Take a look at the balance sheet and income statement of the company. What data or ratios support your decision to buy this bond or not? You should develop a specific recommendation, with supporting rationale to explain your answer.

Debt to assets ratio is 236,450/267,261(total liabilities/total assets) which equals 88.47%. This shows that the company has a high financial leverage, which has a high financial risk. It’s totals assets compared to its liabilities is low which could potentially reduce the risk for the company. 

Ford’s operating income is -4.408 and interest expense is 1,649. The time interest earned equals -4.408/1649 = -00.26. The ratio shows that the company has a really low time interest earned. The operating income does not cover the interest expense in which makes it a high risk for debtholders. My recommendation is not to buy this bond. 

Reflection:

Ford has shown a really sharp decline since 2001. Ford is such a high risk for those who decides to invest and looks like they eventually might go out of business in the future. They have showed to be on a steep decline in its asset to liabilities ratio and they are only digging themselves into a bigger hole. This was a great learning experience in which I learned a lot.

Reference:

Bond detail. (n.d.). Retrieved April 10, 2021, from https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C10166&symbol=F.GI

FORD motor co.dl-debts. 1992(32) bond | markets Insider. (n.d.). Retrieved April 10, 2021, from https://markets.businessinsider.com/bonds/9_950-ford-motor-bond-2032-us345370bh27