This is an individual task. Please answer all questions. Please see “Additional information” for detailed task.
FORMAT
Your submission must meet the following formatting requirements:
• Submit one file only – you must your report in MS Word document and embed your MS Excel workings within the word document. Also, you can embed your excel in the word. Please see this video to know how to embed excel https://www.youtube.com/watch?v=q1vZbJORl-s
• Required file format for main submission: Word document (.docx).
• Additional file format for additional deliverables: Excel spreadsheet (.xlsx).
• Additional file requirements: To be embedded into Word
Other details:
• Font size 12
• Double-spaced
• Number of words: 2000
All refencing and citations require Harvard referencing style.
LEARNING OUTCOMES
This assessment assesses the following learning outcomes:
1. analyze series of future cash flows and recommend choices for investment;
2. categorize the value of bonds as per risk, maturity, rate of return;
3. assess bonds yields within the current financial markets’ conditions;
4. analyze the different types of stocks (preferred and common), asses their value and rate of return.
Task 3.3 – Main task
The students can base their replies on wider research, even from the internet sources, however, all information should be appropriately referred using Business School’s referencing style. Though students’ quantitative analysis will be same, however, justification, use of theory, paper structure and background for recommendation is to be explained in detail for which you will get higher awards.
Students will be assessed based upon following criteria:
1. Concepts explained with good research and referencing – 30%
2. Examples presented/ problem solved with details presented – 20%
3. Critical analysis of the numbers to derive adequate conclusions with sufficient reasoning – 40% 4. Conclusion drawn adequately and no new information is written in the conclusion – 10%
In addition, you will be graded according to the ‘written assignments’ rubric given below.
ADDITIONAL INFORMATION
Part a: In Feb’2018, Amazon raised US$3.5bn by issuing 10-year bonds carrying annual coupon of 3.15%. Amazon could also have raised the same amount of funds from the equity market. What benefits does Amazon get by raising funds via bonds that they would not have received by issuing equity? Why do you think the company did not take a bank loan for the total amount raised? (40 marks) – 10 Marks each for Bonds, Loan and Equity, and 10 for conclusion.
Part b: In Feb’2018, Amazon raised US$3.5bn by issuing 10-year bonds carrying annual coupon of 3.15%. The face value of the bond is $1000 and the coupon is paid every six months.
i. If the bond yield at the time of issue was 3.5%, what would be the price of the bond at the time of issue? (10 marks)
ii. If the bond yield at the time of issue was 3.0%, what would be the price of the bond at the time of issue? (10 marks)
iii. It is said that the price of a bond is inversely proportional to the prevailing interest rates. Prove this statement by taking the case of the above bond and computing the price of the bond at the above two yields (3.0%, and 3.5%) at maturity. (20 marks)
Part c: You have 2 options to invest in – A bond paying 5% p.a. paid annually, and a bond paying 5% p.a. paid semi-annually. Which one will you choose and why? (20 Marks)
